Majority of 401(k) Consultants Support Additional Services in Plans for Retirees

NEWPORT BEACH, Calif., April 16, 2018 -- The majority of 401(k) consultants support additional services in defined contribution retirement plans as participants rely more heavily on such funds when they retire, according to according to the 12th annual PIMCO Defined Contribution Consulting Support and Trends Survey published by PIMCO, one of the world’s premier fixed income investment managers.

The survey, which aims to help plan sponsors understand the breadth of views and consulting services available within the defined contribution retirement market, included the participation of 77 consulting firms which represent 17,000 plan sponsors with over $4.4 trillion in plan assets.

Nearly two-thirds (64%) of those surveyed said they believe plans should offer a “separate retirement income tier,” which may include retiree-focused services and products. While more research is needed to determine the “right” retirement income investment, the majority said no additional fiduciary risk, liquidity, and inflation protection were the most important attributes in a strategy. Consultants also said participants were in favor of monthly distributions and desired a minimum yield of 4 or 5%.

Half of the consultants surveyed recommended an income focused multi-sector strategy given that income during retirement, rather than just the size of the portfolio, becomes relatively more important for participants.

For plan sponsors who would like to retain participants in their plans after they retire, the consultants recommend adding a retirement education tool (80%), allowing distribution flexibility (77%) and adding retiree-focused investment options (76%).  Similar to last year, consultants place investment solutions (rather than insurance products) at the top of their retirement income suggested list.  Their top 3 suggestions are at-retirement target-date vintage(s), cash management and income/multi-sector fixed income strategies.

“Defined contribution plans offer retirees many advantages, including access to institutionally priced investment structures and products such as stable value and multi-manager strategies,” says Stacy Schaus, Executive Vice President and DC Practice Leader. “Today, approximately two-thirds of defined contribution assets are held by participants over 50 years old. As participants enter retirement, 401(k) plans will need to tailor their offerings further in order to support the distinct needs of those no longer working.” 

Other findings from the survey:

• Environmental, Social and Governance (ESG) strategies are recommended by almost half (47%) of consultants as an additional strategy to consider within the core lineup.
   
• Target date funds continue to be the overwhelming preferred choice for the Qualified Default Investment Alternative, or QDIA, (87%).
   
• For plans with assets at or above $1 billion, consultants’ first recommendation is a custom target-date fund. For all other segments, the preferred target-date fund structure is an active/ passive blend.
   
• Active management is deemed important for the majority of asset classes, especially for fixed income and non-U.S. equity. Exclusively actively-managed fixed income for the core lineup is strongly preferred – 46% recommend this as compared to 1% for passive only.
   
• Consultants continue to recommend 10 options as the optimal design of the core menu: six equity, two fixed income, one capital preservation, and one inflation-protection. Stable value continues to be the top recommended capital preservation option.
   
• For core fixed income strategies, 97% recommend a core or core plus strategy, followed by 56% of consultants recommending a foreign or global strategy and 50% for Income/Multi-sector bond.

About the Survey

PIMCO’s DC Practice has prepared the 12^th annual Defined Contribution Consulting Support and Trends Survey to help plan sponsors understand the breadth of views and consulting services available within the defined contribution retirement market. Our 2018 survey captures data, trends and opinions from 77 firms, which serve over 17,000 clients with aggregate DC assets in excess of $4.4 trillion.

About PIMCO 
PIMCO is one of the world’s premier fixed income investment managers. With our launch in 1971 in Newport Beach, California, PIMCO introduced investors to a total return approach to fixed income investing. In the 45+ years since, we have continued to bring innovation and expertise to our partnership with clients seeking the best investment solutions. Today we have offices across the globe and 2,150+ professionals united by a single purpose: creating opportunities for investors in every environment. PIMCO is owned by Allianz S.E., a leading global diversified financial services provider.

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PIMCO – Media Relations
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