Plan Sponsors Look to Make Shifts in Investment Lineups

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Plan sponsors’ desire to reduce plan costs is substantially impacting their approach to investment menu design and their relationships with DC investment managers. But the impact of the resulting activity varies by plan as well as by asset manager. Overall, 7% of plan sponsors intend to add at least one manager to their investment lineup in the next year. At the same time, 2% plan to drop a manager and 16% intend to do a combination of adding and dropping managers, suggesting that the future is not necessarily secure for all firms.

Plan Sponsors Adding and Dropping Investment Managers

When asked specifically about the managers they will continue to use, 29% of plan sponsors intend to award new business to existing firms while only 15% plan to pull business away—evidence that plan sponsors are concentrating their assets with the smaller number of managers they know. Continue reading

The Rules of Engagement

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External forces confronting the 401(k) industry including the Department of Labor fiduciary rule, provider consolidation due to pricing pressure, and the heavy volume of litigation over excessive fees continue to push plan sponsors to hone in on cost reduction and reevaluate expenses related to all aspects of plan administration and investments. Yet managing plan costs is just one of the two top challenges facing plan sponsors—plan sponsors are equally focused on the daunting task of adequately preparing participants for retirement.

Not shying away from the ultimate charge of participant retirement preparedness, plan sponsors are thinking creatively about how to better engage with employees. No longer content with automatic plan features that encourage inaction, more plans are now offering an employee match while others are extending beyond the 401(k) plan to a more holistic level of overall financial wellness. This broader approach takes more immediate needs such as credit card debt and student loans into account, thus providing a more realistic perspective for employees on their own role in retirement savings. Continue reading

Retirement Trends: Plan Sponsors Focus on Financial Wellness

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Plan sponsors are increasingly looking for ways to encourage employee engagement with the 401(k) plan. This year two trends are rising to the top. Compared with previous years, more plans are providing employer matching contributions, thus providing an immediate incentive for participants who actively contribute to the plan. In addition, a relatively new trend shows nearly four in ten employers are considering a financial wellness program to help employees address more immediate financial priorities. In fact, the interest in financial wellness programs far outweighs interest in automatic plan features that are more narrowly focused on retirement accumulation as the end goal.

Overall, just 16% of plan sponsors currently offer a financial wellness program for their employees. But importantly, nearly four in ten (38%) say they are likely to consider adding such a program in the future. A view by plan size reveals that the larger employers are leading the charge, as more than one-third (36%) of Large-Mega plans currently offer a financial wellness program. Yet interest in adding a financial wellness program is relatively strong and consistent across plan size segments, with 37% of Micro plans, 43% of Small-Mid plans and 44% of Large-Mega plans open to considering this level of assistance for their employees. These findings suggest that the opportunity to strengthen client relationships is greatest for providers and advisors who think holistically about the financial health and security of the employees they serve. Continue reading

Plan Sponsors Look to Providers for Support

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Plan Sponsors Looking for Provider Support

By most accounts, Americans are not saving enough for retirement and the probability of millions of future retirees running out of money is high. Plan participant reliance on employer-sponsored retirement plans as a top source of retirement savings has never been greater. This presents a significant pressure point that 401(k) plan providers face in an industry that has become highly scrutinized from a legal and regulatory standpoint.

Additionally, plan sponsors have high expectations of their plan providers to offer outstanding service quality and competitive fees without sacrificing strong investment option performance. Alternatively, plan sponsors feel the pressure as internal company directives demand offering a successful 401(k) plan with greater participant engagement using fewer resources and smaller budgets. As such, plan sponsors are focused on cost reduction more than ever and cite plan administration fees as the top reason for switching record keepers. However, despite the demand for cost containment, significantly more plan sponsors indicate that adequately preparing participants for retirement is a top three area of focus for 2016. Continue reading

Lower Fees Drive Demand for ETFs in 401(k) Plans

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Driving Demand of ETFs

Plan sponsors are consolidating their investment menus to reduce cost, which should be giving DC investment managers cause for concern. Nearly two-thirds (65%) of plan sponsors point to investment fees as one of the primary factors they find most challenging to manage. Amidst the heightened attention on fees and expenses, we find increasing interest in ETFs, especially among larger plans which tend to be trend setters in the industry.

Nearly a quarter (23%) of 401(k) plans include ETFs in their investment menus today, and another 10% of plan sponsors indicate interest in adding these products going forward. Among plan sponsors who currently offer or plan to offer ETFs in the next 12 months, “lower fees” is tied with participant interest and demand as the primary driver of the appeal of these products. Close behind is the recommendation of a plan consultant or advisor, whose suggestions are likely influenced by the potential to lower the fees associated with investments in the plan. Continue reading

DC Plans Shifting From One-Size-Fits-All to One-On-One Retirement Advice

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One-on-One Retirement Advice

A growing number of plan sponsors report they are focusing more on helping employees adequately plan and prepare for a secure retirement, a welcome development that can help combat the lack of retirement readiness among 401(k) participants.

This is great news considering:

  • Auto-enrollment adoption has stayed flat for several years
  • Many plan sponsors are leaving auto-features out of the plan
  • The majority of plans (54%) offer only one source of investment advice

Up until now, one-size-fits-all 401(k) retirement plans have been the main strategy. However, it appears that 401(k) plan sponsors are starting to reconsider this approach. This year, Cogent has found evidence of increasing interest among plan sponsors in adding new forms of advice, as more than one-quarter (27%) are likely to start offering access to an advisor, and one in four (25%) is likely to give participants access to one-on-one advice from a third party. Nearly as many (23%) are likely to incorporate online investment models provided by the plan provider. Interest in offering new modes of advice are stronger among the Mid-sized, Large and Mega plan segments, in-line with a general trend in the 401(k) market where larger plan sponsors tend to be the early adopters of new features that ultimately increase in popularity across all plan size segments. Continue reading

DC Investment Managers Fighting to Survive

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Fighting to Survive

It’s tough being a DC investment manager these days. Plan sponsors are offering fewer investment options within their 401(k) plans than in the past—an average of 13 today compared with upwards of 20 in previous years—and consequently are reducing the number of investment managers they include in their plan lineups all in an effort to
reduce plan costs. Brand awareness is down significantly for many DC investment managers this year, suggesting that plan sponsors are less eager to add new managers to their lineups than they have been in the past. As a result, consideration scores are lower for several investment managers this year.

Plan sponsors’ heightened focus on fees is even more evident in the reasons they cite for dropping an investment manager. For the first time in our survey, the desire to cut fees and expenses outranks investment underperformance as the most common reason plan sponsors would end a relationship with an investment manager. In fact, more than one-third (34%) of Mega plan sponsors, those with at least $500 million in plan assets, cite the need to reduce fees/expenses as a reason for dropping an investment manager. Continue reading

Defending Cost for Value in the 401(k) Market

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401(k) plan sponsor focus on fees is intensifying. In fact, managing plan costs is now cited as the #1 challenge in offering a successful plan to employees saving for retirement. Moreover, fees are gaining even more attention this year than ever, as one in three (33%) plan sponsors anticipate conducting a review of other 401(k) providers, and plan administration fees are identified as the top reason that plan sponsors would switch recordkeepers.

Yet the focus on fees is not limited to plan administration costs. In this year’s Cogent Reports’ Retirement Planscape®, we observe a significant decrease in the average number of investment managers included in plan lineups, suggesting that plan sponsors are consolidating their investment menus in an effort to reduce expenses. Continue reading

Retaining DC Assets is Simple…Just Not Easy

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Simple_Not_Easy

The Challenge: DC participant satisfaction is down—and it’s not your fault.

Overall, participants in defined contribution (DC) plans report lower satisfaction with their plan providers than they did a year ago. To better understand the reasons for this decline, we use a derived analysis in which we are able to assess the extent to which a set of distinct experience attributes impacts participant satisfaction. As we found in previous years, the biggest factor that enhances participant satisfaction continues to be investment performance. What is interesting, however, is that investment performance actually serves as a bigger detractor than an enhancer, meaning it hurts more than it helps. This may explain the decline in the overall satisfaction of DC participants this year, as our most recent data were collected during a time of substantial market turbulence. Continue reading

Plan Sponsors Looking to Switch Providers in Coming Year

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iStock_000006699283XSmallThe DC recordkeeping market is becoming increasingly commoditized, with the “best” providers being those that go unnoticed because nothing glaringly obvious goes wrong. In fact, several notable firms have dropped out of the business in recent years, choosing to focus their efforts on the more lucrative asset management space. However, the firms that remain still have the potential to grow their assets under administration. To uncover opportunities for growth, it is important to not only assess the current landscape for plan sponsors but also to look ahead to the coming year.

When plan sponsors are asked about their primary focus for the coming year, nearly half (49%) cite ensuring the plan is in compliance with regulations. Close behind is reducing plan costs and reevaluating the investment menu, at 47% and 45%, respectively. Most notable, however, is that 1 in 4 plan sponsors intend to reevaluate his or her recordkeeper, up significantly from 18% in the prior year. Continue reading