The global DC landscape is characterized by an expected increase in employer contributions and a growing use of target-date funds (TDFs), while DB plans around the world will continue their switch to liability-driven investing (LDI).
Those are some of the main findings of a Vanguard survey, called Global Trends in DB and DC Plans.
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The report shows 71% of respondents expect to increase employer contributions to their DC plan either dramatically or somewhat.
Also, 66% of respondents prefer to use a TDF as their DC plan’s default investment option, but actual adoption is lagging, mainly outside the U.S. There, nearly two-thirds of respondents use off-the-shelf TDFs for their DC plans and another 13% use custom TDFs. For DC plans outside the US, only 30% of respondents use either off-the-shelf or custom TDFs.
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Additionally, 79% of respondents say fee transparency in DC plans is one of the most important considerations for choosing whether to use a bundled service approach, where the plan administrator and investment manager are the same and the fees for both are bundled into one asset-based fee, or an unbundled approach, which separates the cost for each and clarifies the extent to which higher asset-based fees may be subsidizing plan administration costs.
On the DB side, the survey shows adoption of LDI will continue, with 73% of organizations preferring LDI over total return strategies. This preference was especially strong for DB plans in Europe.
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Another trend in the global DB landscape is the intention of sponsors to spend more resources on DC plans in the future, underscoring the expectation that DC arrangements will become more prevalent.