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Plan Sponsors Warm to Keeping Assets In-Plan

Fiduciary Rules and Practices

Plan sponsor interest in keeping retiree assets in their defined contribution plans is increasing, according to new research from Cerulli Associates based off surveys and conversations with plan sponsors, consultants and DCIO asset managers.

More than half (54%) of 401(k) plan sponsors prefer to keep their retired participants’ assets in their plan, as opposed to having participants roll their assets into an individual retirement account (IRA) or another employer-sponsored plan, a notable increase from 26% in 2019, the firm reports in its latest Cerulli Edge—U.S. Asset and Wealth Management Edition.  

Mega Plan Market

 

Findings from Cerulli’s 2022 DC Consultant Survey offer similar results. In this case, 16% of consultant-intermediated plans actively seek to keep retiree assets in-plan and another 42% prefer to keep retiree assets in-plan. 

Yet, when looking specifically at plans intermediated by institutional investment consultants, 35% actively seek to retain retiree assets and an additional 40% prefer to retain retiree assets but do not actively seek to retain them. Considering the size of the plans that institutional investment consultants advise, Cerulli notes that this data confirms that interest in keeping retiree assets in-plan is greater among the large and mega plan market than those in smaller plan asset segments.  

“Many larger plan sponsors are considering or implementing plan design and investment lineup changes to make their plans decumulation-friendly,” says Shawn O’Brien, Associate Director at Cerulli. “As more plan sponsors strive to keep participants’ assets in-plan, asset managers should focus their retirement income product distribution on the mega plan market.” 

The report further emphasizes that it was not long ago that retirement tiers were merely a “theoretical concept” little known within the DC industry. “The fact that some larger plans have implemented a retirement tier, and a larger percentage are considering doing so, suggests there is some momentum behind the trend of making DC plans a primary decumulation source,” the report states. 

Retirement Income Options

 

The research further reveals that retirement income is the most top-of-mind issue within the defined contribution investment-only (DCIO) asset manager community. Of DCIO asset managers, 88% say conversations with plan sponsors, advisors and consultants related to in-plan retirement income have increased in the past 12 months, as some larger plans transition from aspiring to make their plans decumulation-friendly to considering—or even implementing—plan design and investment lineup changes. 

Cerulli also believes that less affluent retirees without ready access to wealth management services stand to benefit the most from keeping their retirement assets in their employers' DC plans in retirement. Plan sponsors offering retirement tiers likely will offer a suite of both advice-based and self-directed investment options to address the needs of this diverse investor group, the report further notes. 

Meanwhile, when considering in-plan retirement income products, DC consultants are most likely to recommend a target-date fund (TDF) with a guaranteed income component (68%), followed by a TDF with an income vintage (50%) and a managed account (36%).

Cerulli’s end-investor data suggests, however, that retirees typically prefer flexibility and access to an advisor over an income guarantee.

Moreover, despite the proliferation of new guaranteed income products, asset managers are split as to whether an effective retirement income solution needs a guaranteed income component. Cerulli notes that some industry observers believe more widespread adoption of annuities within DC plans will require additional legislation encouraging, or even mandating, annuitization options. 

Consequently, Cerulli recommends asset managers’ key account managers and consultant relations personnel schedule periodic check-ins with plan sponsors to assess any progress or new initiatives related to making their retirement plan more suitable for decumulation. From there, asset managers can more confidently assess whether the plan sponsor will be open to considering new retirement income products or solutions for their plan.  

“Overall, growing interest from plan sponsors in making their plans more retiree-friendly creates an opportunity for asset managers and retirement plan providers to satisfy a nascent, albeit largely unmet, need for more effective, comprehensive in-plan decumulation solutions,” O’Brien further observes. “Innovations in in-plan decumulation will benefit mass market, middle market, and certain mass affluent retirement investors who are often ignored by the traditional wealth management industry,” he adds.