Magazine

trendspotting | PLANADVISER January/February 2017

Surprising Top Concerns

Worries over fiduciary risk have decreased.

By Amanda Umpierrez editors@assetinternational.com | January/February 2017

The annual PLANSPONSOR/Janus Capital Group defined contribution (DC) investment study saw a focus on managing fees in 2016, marking a shift from the focus on fiduciary risks and duties that dominated plan sponsors’ worries in the past.

The move comes as a surprise, as just five years ago low fees were voted the least important consideration for plan sponsors when selecting a qualified default investment alternative (QDIA). In comparison, last year, low fees were selected as one of the top three considerations, behind performance and quality of underlying funds.

Concerns over fiduciary risk decreased, with less than 11% of plans citing it as a top concern—a sharp decline from 20% in 2012. However, turning attention from fiduciary risk to fees may not be the best approach, warns Russ Shipman, managing director and senior vice president of Janus Retirement Strategy Group.

“Only focusing on fees, and not fully benchmarking or understanding the underlying makeup of a target-date fund [TDF], could potentially be a dangerous decision,” he says. “Fund fees, while an important input into a well-designed and executed fiduciary process, should not necessarily be among the top defining priorities when selecting a QDIA for a diverse participant population.”

As target-date funds continue to dominate plan lineups, with nearly 77% of sponsors utilizing them in their defined contribution plans, the study found that more than 60% of sponsors believe TDFs are the best QDIA for plan participants. That is a major change from 2012, when less than half of plan sponsors had the same belief. Additionally, plan sponsors unsure of the best type of QDIA dropped to an all-time low of 17.9%.

According to the study, plan sponsors are more confident that participants are using TDFs correctly. While single-manager TDFs continue to be utilized by more than 40% of plans, there was an upsurge in the usage of multi-manager versions and professionally managed accounts.

“Confidence in target-date fund usage is up among plan sponsors overall this year, implying plan fiduciaries are as engaged as ever with respect to this specific plan structure design,” Shipman adds.

Those who reported “not sure” about how they are evaluating/benchmarking TDFs decreased to 9.6% of total respondents—another positive sign.