Asset manager-sponsored plans are also more complex in their investment offerings, which makes sense given the makeup of their participants. (Photo: Getty)
Asset managers running the 401(k)s for their own employees differ in some important aspects from 401(k)s in general, according to research from the Callan Institute, and while some of those differences are beneficial, other differences perhaps aren't suitable for participants overall.
Manager-sponsored plans, according to the report, had higher balances and much higher employer and employee contribution rates than the broader population of plans—a Really Good Thing, considering how the average participant of the average plan is faring.
They brought this about at least in part thanks to “generous matching policies, profit-sharing, high salaries, and long employee tenure…”
The average balance in manager-sponsored plans, in fact, was $179,171 as of the end of 2016—more than four times the average of $42,394 for the broad Form 5500 database population of 55,000 plans.
Employer contributions—with every investment firm in the study making some form of contribution to plans, compared with only 85 percent for the broad population–averaged $5,938, nearly five times the average of $1,238 in the broad population.
Interestingly, employee contributions run approximately three times that of employees in the overall population.
The report notes that perhaps this has something to do with the fact that “employer contributions for manager plans are a significantly higher fraction of employee contributions (83 percent) than is the case for the broad universe of plans (51 percent).”
Manager-sponsored plans are also more complex in their offerings. Greg Allen, CEO and chief research officer at Callan, is quoted in the report saying, “The prevailing philosophy for the industry seems to be that its participants are sophisticated investors and should be given a broad universe of choices.”
Manager plans, in contrast to plans in general, allocate a higher proportion of assets to active management strategies, which the report says probably reflects the firms' business models.
They also don't rely heavily on target-date funds, but do often offer participants the chance to invest in their own proprietary funds.
In addition, they have relatively high usage of brokerage windows.
Says the report, “While this philosophy may be the right one for portfolio managers and other highly compensated investment professionals, it is not clear from a fiduciary standpoint that it should be extended to the broad population of DC plan participants, most of whom are non-investment professionals.”
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
