Meeting plan members’ retirement goals (29 per cent) and managing litigation risk (25 per cent) are the top factors driving defined contribution pension plan sponsor decision-making, according to new research by global investment manager PIMCO.
The annual research surveyed nearly 70 defined contribution consultants and advisors providing services to more than 12,000 plan sponsors in the United States. Respondents suggest plan sponsors take the following actions to manage fiduciary risk: benchmark plan costs (84 per cent), document investment reviews (68 per cent), conduct fiduciary training (59 per cent) and move away from revenue sharing (55 per cent).
In terms of fee payment, more than half of respondents recommend a flat dollar charge per participant for all plan sizes, while nearly a third recommend the employer pays out of pocket. Fewer than 10 per cent would reduce the contribution match to allow the employer to pay fees. And nearly three-quarters would not charge fees pro rata across plan assets, regardless of the size of the plan.
The majority of respondents rank active management as important or very important across eight asset classes, including emerging market equity (94 per cent), non-U.S. bonds (92 per cent), U.S. bonds (88 per cent), infrastructure (87 per cent), U.S. small cap equity (82 per cent), non-U.S./developed markets equity (82 per cent) and commodities (66 per cent).
Nearly all (97 per cent) of respondents recommend that target-date funds be used as the default investment option. The remainder suggest target risk or balanced strategies and managed accounts.
The survey also asked consultants which factors were the most important when plan sponsors are evaluating and selecting default investment strategies. The top answers were glide-path structure (98 per cent), fees (89 per cent), diversification and underlying investments (73 per cent), probability of meeting retirement income objective (55 per cent) and quality of underlying investments (53 per cent).
When it comes to retirement income, 73 per cent of respondents believe plan sponsors should allow distribution flexibility or add retirement education and tools to encourage retirees to retain their assets in the plan. More than half also support offering retirement drawdown advice (54 per cent), allowing consolidation of non-plan assets (52 per cent) and adding retiree-focused investment options (51 per cent).
In terms of defined contribution plan design, 98 per cent of consultants recommend auto-enrolment while 94 per cent recommend auto-escalation.