Client Service August 4, 2017

Plan Design Can Help Participants Get the Full Company Match

Advisers can help retirement plan sponsors design their plans and financial wellness programs to get participants to defer enough to receive the company's matching contribution.
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An analysis from Fidelity Investments shows more than one in five employees (21%) do not contribute enough to their 401(k) to take full advantage of their company’s matching contributions.

Meghan Murphy, director at Fidelity Investments in Boston, understands that people have a lot of competing financial priorities. She tells PLANSPONSOR, many young employees ask how to save for retirement and pay student loan debt; Generation X is paying for day care, their own student loan debt, and saving for their children’s college education; Baby Boomers are taking care of parents. “There’s a lot in people’s lives competing with retirement contributions,” she says.

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Joleen Workman, AVP of retirement at Principal, based in Des Moines, Iowa, adds that for many, retirement can seem far away, and sometimes the immediate needs of today get prioritized over saving for tomorrow. “It really comes down to balance. It’s always important to pay yourself first, meaning make sure you set aside your savings before allocating your monthly budget elsewhere, instead of saving whatever’s left at the end of the month,” she says. “We know from our behavioral research that when we can automate big savings decisions, and supplement that plan design with education, people will save more.”

Retirement plans and company match contributions are big benefits employees value, so they should be encouraged to save at least enough to get the full match, according to Murphy. She revealed that Fidelity’s analysis found of the 21% not deferring enough to get the full match, roughly half are only one to two percentage points away. “That small bump could make a huge difference in their retirement savings,” she says.

There are things plan sponsors can do to help employees contribute enough to take advantage of the full employer match. Murphy notes that many new employees are automatically enrolled in their 401(k)s, but employers don’t always choose a default deferral percentage that will get employees the full match. She points out that the most common default deferral percent is 3%, but the most common match formula is 50% of the first 6% of salary deferred. Murphy would advise employees to make it their business to know how much is needed to get the full match, but plan sponsors could also raise their default deferral level.

“This is a trend that we see happening,” she says. “Forty-eight percent of plan sponsors still use 3%, but five years ago, 60% were. Now, 51% are defaulting at a deferral level higher than 3%.”

NEXT: Auto-escalation and financial wellness programs

Workman adds, “We see truly remarkable results that come with best-in-class plan design. The combination of automatic enrollment and auto-escalation make it easy for people to make solid financial choices, which ultimately can lead to life-changing savings over time. Overwhelmingly, we see people stick with the plan when their decisions are automated.”

According to Murphy, 75% of plan sponsors use automatic deferral escalation, where employees can opt in to auto-escalate. There’s also a trend of employers automatically enrolling employees into auto-escalation. “That number has gone from about 11% five years ago to about 16% now,” she says. “Employers recognize inertia—that people don’t tend to review their savings each year.”

Financial wellness programs can also help. “Many times employees say they just can’t afford to save more, but if plan sponsors and providers help with other financial decisions—a plan for paying down debt, knowing know how much they can afford for a home or car, budgeting—we hope to get them in a better spot to contribute to their retirement accounts.”

Workman concludes, “The more plan sponsors can do to make it easy for their employees, the better off [employees will] be financially.”
Products August 3, 2017

Investment Products and Service Launches

Deutsche AM Slashes Mutual Fund Expenses; Fidelity Cuts Expenses on Mutual Funds; Transamerica Debuts Smart Beta ETFs; and more.
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Deutsche AM Slashes Mutual Fund Expenses

Deutsche Asset Management (Deutsche AM) has reduced the net expense ratios of its suite of U.S.-domiciled global and emerging markets mutual funds, as well as management fee reductions on certain funds.

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Deutsche Emerging Markets Equity Fund – Class I dropped its expense ratio from 1.40 basis points to .90 basis points. The Deutsche Emerging Markets Equity Fund – Class I cut its expense ratio from 1.07 basis points to .87 basis points.

Deutsche notes the expense reductions bring the average net expense ratios of these funds to the lowest cost quartile in their respective Morningstar categories.

“We are committed to bringing Deutsche Asset Management’s international capabilities and unique global perspective to investors in the Americas,” says Brian Binder, president of Deutsche Funds and head of U.S. Product & Fund Administration. “With the European and emerging markets in the early stages of the growth cycle, and many investors overweight in U.S. equities, clients are looking for investment opportunities overseas. Because expense ratios can have a direct impact on performance, we are pleased to introduce these reductions as clients seek to diversify their portfolio across a wider world of international markets.” 

NEXT: Fidelity Cuts Expenses on Mutual Funds

Fidelity Cuts Expenses on Mutual Funds

Fidelity Investments has reduced the total expenses on 14 of its stock and bond mutual funds. The firm says average expenses across this lineup have dropped to 9.9 basis points, from 11.0 basis points recorded before the shift which went into effect August 1, 2017.

"We believe we have an index value proposition unsurpassed in our industry," says Colby Penzone, senior vice president for Fidelity’s Investment Product Group. "When you combine low expenses with our award-winning online brokerage platform, mobile applications, more than 190 Investor Centers in the U.S., and live 24/7 customer service via phone, we believe Fidelity provides the best customer experience and value in the industry."

For a list of funds with reduced expenses, visit Fidelity.com.

NEXT: Transamerica Debuts Smart Beta ETFs

Transamerica Debuts Smart Beta ETFs

DeltaShares by Transamerica is a suite of strategic beta exchange-traded funds (ETFs) designed to provide core equity strategies with an embedded risk-management feature. Transamerica Asset Management says DeltaSahres is the first ETF suite to track the S&P Managed Risk 2.0 Index Series. It was built to provide investors with the ability to track the performance of a given segment of the equity market, while seeking to control volatility.

"Through a combination of stocks, U.S. Treasury Bonds, and cash, these DeltaShares ETFs will seek to optimize the most appropriate combination of these investment choices through a rules-based methodology based on stock market volatility trends,” says Tom Wald, chief investment officer for Transamerica Asset Management.

The suite includes the DeltaShares S&P 500 Managed Risk ETF, which tracks the S&P 500 Managed Risk 2.0 Index. It’s designed to measure U.S. large-cap equities using a managed risk strategy seeking to limit losses and capture the upside in rising markets.

The DeltaShares S&P 400 Managed Risk is designed to measure U.S. mid-cap equities, and The DeltaShares S&P 600 Managed Risk ETF is built to measure U.S. small-cap equities.  

Meanwhile, the DeltaShares S&P International Managed Risk ETF tracks the S&P EPAC Ex. Korea LargeMidCap Managed Risk 2.0 Index. It focuses on broad international developed markets.

Milliman Financial Risk Management, a Chicago-based SEC-registered investment adviser, will act as sub-adviser to the suite. 

NEXT: Vanguard Adds TimesSquare Capital to Advisory Team

Vanguard Adds TimesSquare Capital to Advisory Team

TimesSquare Capital Management has joined Vanguard’s advisory team running the Vanguard International Explorer Fund. The firm will join Schroder Investment Management North America and Wellington Management Company in overseeing the $3.4 billion small- and mid-cap international equity fund.

“Vanguard continuously scours the globe for world-class investment talent, forging relationships with firms that bring particular expertise and experience to specific mandates,” says Vanguard CEO Bill McNabb. “Our long-term approach and in-depth engagement with firms ensures strong and stable advisory teams that offer differentiated, but complementary investment approaches to the benefit of our clients. We welcome TimesSquare as a valuable addition to our talented roster of investment management partners.”

The fund seeks to provide long-term capital appreciation by investing in smaller companies that are expected to grow at a faster rate than the overall market. These firms primarily are based in the developed European and Pacific markets. Vanguard says the investment objective and principal investment strategies of the fund will remain the same, and the expense ratio of 0.41% is not expected to change.

Following the transition, TimesSquare Capital will initially manage less than 5% of the fund with its allocation expected to grow in the future. Schroders, which has managed the fund since its inception in 1996, will oversee approximately 66% of the fund. Wellington, which was added as an adviser in 2010, will manage approximately 29% of the fund with the remainder in equitized cash investments.

The TimesSquare Capital sleeve of the fund will be headed by portfolio manager and senior vice president Magnus Larsson. With more than 22 years of investment experience, Larsson leads the firm’s international small-cap team comprised of four additional investment analysts and two traders.  

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