DC Consultant Survey Reveals Stronger Client Opinions on Retirement Income
DC plan consultants say plan sponsors are more likely to have clearer views on retirement income options, according to a T. Rowe Price survey.
Three years can make a big difference.
In 2021, consultants and advisers said more than half of their plan sponsor clients had no stated opinion on retirement income. In 2024, those views (or lack thereof) have changed substantially.
T. Rowe Price’s 2024 DC Consultant Study found only 19% of plan sponsors do not have any stated opinions on retirement income.Jessica Sclafani, a senior defined contribution strategist at T. Rowe Price, says this does not necessarily mean that defined contribution plan sponsors are racing to implement retirement income solutions. However, she says plan sponsors are more likely to have an informed point of view and stance on retirement income, and that stance will then affect their actions.
Consultants and advisers rated a simple, systematic withdrawal capability as the most appealing strategy to deliver income to retired participants, reflecting a “near-term focus” on supporting plan sponsors in facilitating regular, repeatable and predicable income, according to the study.
In a separate survey of plan sponsors, conducted in the third quarter of 2024 by T. Rowe Price, Sclafani notes that sponsors similarly identified simple, systematic withdrawals as the most appealing strategy. But she argues that systematic withdrawals are not an investment solution.
“It’s a plan design feature,” Sclafani says. “It’s really about revisiting the plan’s distribution options, as opposed to selecting a new investment product to be offered within the plan. So I see it more as a first step in terms of beginning to reposition the DC plan to accommodate and meet the needs of not only those in the savings phase, but also those in the spending phase.”
Managed Accounts
Managed accounts with an income-planning feature and target-date investments with a managed payout feature also ranked high among advisers and consultants as appealing retirement income solutions. Survey results pointed toward a preference for a multi-asset, total portfolio solution that includes a retirement income component.
T. Rowe Price recently launched its own managed account, Personalized Retirement Manager, which offers a more customized investment allocation built on its TDF asset allocation methodology.T. Rowe Price also found that managed accounts are being offered most often as an opt-in option on DC investment menus, which Sclafani says reflects a lack of support among consultants and advisers to position managed accounts as a qualified default investment alternative.
“On the whole for the industry, I would say that the fee differential between managed accounts and target-dates is the primary reason why we’ve seen target-dates emerge as the QDIA of choice,” Sclafani says.
Advisers, more than consultants, were keen on using managed accounts within a dynamic or dual QDIA structure, whereby participants are initially defaulted into a TDF and then moved into a managed account service when approaching retirement—typically about 15 years prior to anticipated retirement.
Overall, the study found that managed accounts appear unlikely to dethrone TDFs as the most prevalent QDIA.
Fees and CITs
The focus on fees was also seen with consultants and advisers’ strong, and nearly unanimous, support for transitioning to target-date solutions offered in a collective investment trust vehicle. Compared with mutual funds, CITs can offer fee efficiencies, which are a primary force driving the asset shift from target-date solutions offered in mutual funds, according to the report.
Sclafani notes that consultants and advisers more recently have been negotiating aggregated pricing arrangements with asset managers and then offering that fee structure to all of their clients, which is often implemented in a CIT.
Survey results also suggested growing support from both consultants and advisers for target-date solutions constructed with both active and passive investment strategies, as they can offer a lower fee profile and reduced tracking error with the benefits of active management.
The “2024 DC Consultant Study” included responses from 35 DC consulting and advisory firms (71% consultant, 29% adviser) with more than $7.5 trillion in assets under advisement, surveyed from January 12 through March 4.