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