Investing April 18, 2017

Target-Date Fund Reviews a Top Priority for Plan Sponsors

The second highest priority listed by plan consultants is an evaluation of investment fees.
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Retirement plan consultants list reviewing target-date strategies as the top priority for their plan sponsor clients, according to the 11th annual PIMCO Defined Contribution Consulting Support and Trends Survey.

More than three-quarters (77%) of the 69 consultants surveyed said target-date fund reviews are the top priority over the next year for their plan sponsors clients, closely followed by an evaluation of investment fees (73%). The consultants participating in the survey advise more than 12,000 plan sponsors with more than $4 trillion in cumulative defined contribution assets.

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Nearly all (97%) of consultants recommend target-date funds as the qualified investment default alternative (QDIA).

The largest percentage of consultants recommend plans with less than $1 billion in assets select a packaged active/passive blend fund when choosing target-date strategies. For larger plans, nearly half of the consultants (48%) recommend custom target-date strategies that enable tailoring of both the glide path and the investment manager line up, while just over one-quarter (27%) recommend packaged active/passive funds even for these mega plans.

Assets in custom target-date strategies continue to grow, with consultants reporting nearly $200 billion in custom target-date assets under management (AUM). At the median, consultants expect an additional 10% of clients to implement these strategies in the next three years.

“Nearly all consultants (98%) recommend that plan sponsors consider a target-date fund’s glide path as the most important factor in evaluating and selecting an investment default strategy,” saysStacy Schaus, executive vice president and author of the survey. “Consultants also note fees as an important consideration, which helps explain broad support for active and passive blend target-date strategies.”

Other consultant recommendations include:

  • The vast majority of consultants view active management as an important or very important investment approach for emerging market equity (94%), non-U.S. bonds (92%), U.S. bonds (88%), infrastructure/MLPs (87%), U.S. small cap equity (82%) and non-U.S. developed market equity (82%);
  • Nearly all consultants (97%) recommend core or core plus fixed income as a stand-alone core investment option, with the majority also supporting a second core bond choice such as a foreign or global fixed income or a multi-sector bond fund;
  • Most consultants (92%) recommend including one inflation-protection option in the core lineup, up from 84% in 2016. The top recommended stand-alone strategies in inflation-protection include inflation-linked bonds/TIPS (66%), multi-real asset strategies (55%) and REITs (50%); and
  • Consultants recommend stable value strategies over all other capital preservation alternatives, with 94% of respondents believing clients are very likely or likely to switch to stable value when seeking an alternative to money market funds.
Participants April 18, 2017

Women Prepare Better for the Unexpected

“Female decisionmakers are more likely to incorporate financial products that help accumulate assets to provide income for retirement, such as an annuity, into their financial plans than male decisionmakers," a Lincoln Financial Group study found.
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A new report from Lincoln Financial Group, “Personal Finance: What Women Do Better Than Men,” considers ways men and women differ as decisionmakers when it comes to personal finance and retirement planning.

One key finding is that “female decisionmakers are more likely to incorporate financial products that help accumulate assets to provide income for retirement, such as an annuity, into their financial plans than male decisionmakers.”

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According to Jamie Ohl, president, retirement plan services, Lincoln Financial Group, the findings “generally show that women, more than men, understand the importance of saving, recognize that unexpected events have the potential to disrupt financial stability, and are taking action to help secure their financial futures.” Women have the opportunity to build on these strengths, while also focusing on areas where they can improve, such as taking steps to protect their income and wealth, she adds.

The research finds nearly all women (90%) say it’s “important to stay on track of managing day-to-day living expenses,” compared to 79% of men. And while both men and women are optimistic about their financial futures, women are “more likely to say it is very important to save for the future, which includes both retirement and other financial goals.” Women “also understand the value of planning for income in retirement, as 71% believe retirement income planning is an important wealth-protection strategy for the future.”

Another important stat for retirement plan professionals to consider: “As part of that strong focus on the future, women are more likely than men to view life insurance as critical to their financial well-being, and they’re taking action. In 2016, 56% of women surveyed owned life insurance, compared to 49% in 20134.”

Lincoln’s research suggests women are also more aware than men that “unexpected issues beyond their control could affect their financial futures.”

“This awareness sets the stage for women to put in place financial protections that can help them be more prepared in the event of unforeseen circumstances,” Ohl says. “It is important to note that just 16% of women feel very confident that they would be able to cover their current expenses if they were faced with a serious injury or illness.”

NEXT: Women better at facing uncertainty  

Fully 40% of women admit they “worry about becoming unable to work and make money due to a disability.”

“Women also feel significantly less prepared than men to protect their wealth from external factors such as taxes, inflation and market volatility,” Ohl says. This may seem like a negative finding, but Ohl sees it as a positive: “Again, women seem to be a little more realistic about how much is unknown about planning for the financial future.”

“Women have a firm grasp on the reality that unexpected health and other issues can arise at any time—disrupting life and throwing a wrench into financial plans,” agrees Diane Russell, senior vice president of group benefits at Lincoln Financial Group. “And women can turn this concern into a strength by arming themselves with the right financial protections. For example, enrolling in various insurance coverages through work can help protect income and safeguard financially against the unknown. Benefits frequently offered through the workplace, such as disability insurance, accident insurance and critical illness insurance, can help provide a layer of financial security in case of emergency.”

The research shows many women are already taking advantage of these protections: “63% of women offered disability insurance are currently enrolled, compared to 58% of men. However, not as many are taking advantage of benefits like accident insurance and critical illness insurance, which can help cover the cost of high deductibles or even provide a lump-sum payout in the case of a serious illness or injury.”

“Long-term care coverage is another important consideration for women,” Ohl warns. “The majority of caregivers in the U.S. are women, which can often lead to physical, emotional and financial stress—yet only nine percent of women own long-term care insurance.”

Ohl and Russell conclude the research shows women can build on their financial strengths by taking simple steps, such as meeting with an adviser, saving more for retirement and learning what insurance and investing options are available.

Additional research and information about this topic is available at www.lfg.com/women. 

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