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Diversification of funds has been a mantra for retirement plan sponsors and advisors for a while. However, a new study reveals that fixed income options are frequently absent — or at least not emphasized as much as equity plans — in their menus.
The Plan Sponsor Council of America (PSCA) and the National Association of Plan Advisors (NAPA), sponsored by Janus Henderson Investors, surveyed plan sponsors and retirement plan advisors between Jan. 21-Feb. 21 regarding current menu options and investment trends. (Note: The survey was conducted prior to the COVID-19 lockdown and resultant economic volatility.)
The 2020 Plan Investment Trends survey questioned 96 plan sponsors of varying sizes. Those surveyed included more large plans (32.3% with 5,000 or more eligible employees) than small plans. More than 40.7% of those surveyed have assets of $250 million or more, with than 20% having total assets of $1 billion or more.
Here are some of the investment trends the PSCA/NAPA survey revealed:
Treading the well-trod equity route: Plan sponsors offer almost three times as many equity plan options on average (10.3) versus fixed income options (3.7) across all plan sizes.
Stable value most often recommended: The top types of fixed income options typically recommended by advisors to plan sponsors are stable value funds (84.3%), intermediate/core (74%) and multi-sector (55.9%).
Some agreement on key factors to consider: Risk tolerance is the most important factor considered (44.3% among sponsors, 56.3% among advisors), though retirement age of participants is also important to sponsors and advisors (34.6%/40.8%) when selecting a fixed income option to offer.
Going it alone, without fiduciary help: A disturbing finding is that one-third of plan sponsors surveyed don't have a fiduciary investment advisor to help them navigate this area.
What tips the scale in favor of fixed income recommendations: Plan advisors surveyed ranked these factors as "essential" or "preferred": Risk/reward 94.6%; Performance 98.5%; Fees 95.1%; Quality 92%.
|Retaining assets, evaluating investments
The survey also asked plan sponsors about plans that recommend that participants retain the assets in the plan after separation from their jobs, and most (58.9% across all plan sizes) do not. However, 48.4% of plans with more than 5,000 participants recommend that participants keep the assets in the plan at separation, whether from retirement or not. A majority of advisors (61.8%) said that plan sponsors should not encourage participants to retain assets in the plan after separation.
Advisors also overwhelmingly recommend that sponsors evaluate investments quarterly: 65.5% for equity plans; 62.3% for fixed income; 62.8% for real estate; 55.4% for target-date funds; and 41.1% for managed accounts. Almost 44% of advisors recommend that managed accounts be reviewed annually, which is the only type of plan where the frequency comes even close to anything other than quarterly.
Steve Salkin is a managing editor for ALM.
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