Data & Research June 9, 2016

Cost Concerns Driving DC Plan Sponsors to Change Investment Lineups

Significantly more plan sponsors intend to take action in the form of negotiating for lower fees or lower-fee share classes, eliminating revenue-sharing arrangements, or consolidating the plan investment menu, Cogent Reports finds.
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Findings from the latest Retirement Planscape, an annual Cogent Reports study by Market Strategies International, indicate 401(k) plan sponsors are consolidating the number of defined contribution (DC) investment manager relationships as well as the number of plan investment options in an effort to reduce plan costs.

For the first time, the desire to reduce fees and expenses outranks underperformance as the most common reason for dropping an investment manager from the plan lineup.

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“It appears that fee disclosure regulations are driving a substantial amount of activity,” says Linda York, senior vice president of the financial services division at Market Strategies. “During this period of lower returns and lower yield, the impact of fees is magnified—another factor driving the focus on fees. This year, we find significantly more plan sponsors intending to take action in the form of negotiating for lower fees or lower-fee share classes, eliminating revenue-sharing arrangements, or consolidating the plan investment menu.”

The report notes differences in intended actions by plan size, with smaller plans more likely to request lower fees and larger plans looking for lower-cost, more personalized investment options. Despite reductions in investment options and relationships, the report finds an increase in the types of investment products offered in 401(k) plans. Mutual funds remain the most common investment vehicle offered, yet in search of performance and a more favorable fee structure, interest is rising in products such as managed accounts, exchange-traded funds (ETFs) and collective investment trusts (CITs).

The full report also examines trends in investment menu design as well as perceptions of 48 leading DC investment managers.

“All plan sponsors agree on the importance of strong, consistent investment performance, which not only boosts consideration potential if investment managers are highly associated with this attribute, but also detracts from consideration if a firm is perceived to have lagging returns,” says Julia Johnston-Ketterer, senior director at Market Strategies and coauthor of the report. “That said, competitive fees and fee structure become even more important as you go up market to large and mega plans.”

Information about how to request the report is here.

Products June 9, 2016

MassMutual Offers Low Cost Credit to Stave Off 401(k) Loans

Nearly one-third of Americans have no emergency savings.
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To help preclude 401(k) participants from taking out loans or hardship withdrawals, MassMutual is making Kashable credit services available through the BeneClick! employee benefits exchange. 

Applications can be submitted online. Employees are prequalified for credit based on their employment; Kashable determines their ability to repay and sets the amount of credit they qualify for. Interest rates start at 6% with repayment terms between six and 12 months.

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“Access to emergency credit can be a highly valuable benefit for workers and can help protect their retirement savings when financial emergencies arise,” says James Ocampo, assistant vice president, strategic development for MassMutual. “We expect Kashable’s loan program to be a popular voluntary benefit, both with employers and employees.”

MassMutual’s 2015 Employee Benefits Security Study found that 37% of workers find managing their personal finances somewhat or very difficult, and 40% say personal financial problems are a distraction at work. Additionally, Bankrate.com’s 2016 Financial Security Index revealed that 29% of Americans have no emergency savings, and of those that do, 21% do not have enough to cover three months’ expenses.

“In an economy where employees are worried about their finances, providing a loan program that meets the health/wealth challenge head on, is a major competitive edge for employers,” says Einat Steklov, co-founder of Kashable. “We applaud MassMutual for their comprehensive platform and are proud to be included on BeneClick!”

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