Almost two thirds of large and midsized 401(k) consultants and advisors say that plan sponsors are looking to keep and serve plan participants after retirement.
That’s according to the 13th Annual Defined Contribution Consulting Study published by PIMCO, which also finds that 66 percent of consultants and advisors have recommended that plan sponsors provide a retirement income tier for retirees that offers a range of retirement income solutions instead of a one-size-fits-all fix.
Consultants and advisors also advocated for distribution flexibility (84 percent), providing access to education and tools (41 percent) and adding retiree-focused investment options (38 percent) as top ways to keep DC plan participants once they’ve retired.
“We are starting to see a definitive shift in sentiment across the DC landscape as plan sponsors seek to tailor plan offerings not only to serve those currently saving for retirement, but also those who are already in retirement,” Rick Fulford, head of PIMCO U.S. defined contribution, is quoted saying.
Fulford adds, “Empirically, retirees demonstrate a propensity to spend only from available income, while preserving account balances, so we’re not surprised by the emphasis on income generation and capital preservation as it relates to retirement income option design.”
When it comes to presenting a plan for retirement income, large and mid-sized consultants and advisors are recommending both single and multiasset solutions, with limited support for insurance guarantees.
In allocation, 78 percent suggest an equity exposure of less than 40 percent at retirement, especially since tolerance for drawdown risk dropped from 10 percent last year to just 8 percent this year.
In addition, 72 percent recommend monthly distributions, while all of the consultants and advisors preferred a distribution yield greater than 4 percent.
Plan sponsor priorities have shifted, too, the study finds, with most large and midsized consultants and advisors now ranking reviews of target-date funds as the highest priority (63 percent); after that comes evaluation of investment fees (44 percent) and administration fees (28 percent) and simplification of investment menus (25 percent).
What’s most important in evaluating default strategies, according to consultants/advisors? Glide path structure (84 percent), followed by fees (just 56 percent). Nearly a third (31 percent) believe managed account costs are justified, although just 6 percent believe that managed accounts’ performance is superior to that of TDFs.
And within core menus, large and mid-sized consultants and advisors advocate for two fixed-income options, excluding the capital preservation option. Nearly all—97 percent—recommend a core or core plus strategy; 47 percent of consultants recommend an income-focused/multisector bond strategy.