Consultants Make Suggestions for DC Plan Investments

According to PIMCO’s 7th Annual Defined Contribution and Consulting Support and Trends Survey, more than half (51%) of consultants believe a custom target-date approach is an improvement over current packaged funds. Eighty-one percent suggest the addition of Treasury inflation-protected securities (TIPS) to reduce risk in asset allocation strategies.  

If plan sponsors decide to use managed accounts, the majority of DC investment consultants (55%) say they should be offered as an opt-in asset allocation choice only. Nearly one-third (32%) of consultants do not recommend managed accounts, while only 12% recommend them as the opt-out investment default.  

DC Plan Investment Structure  

On average, nearly all firms surveyed by PIMCO (96%) recommend clients offer one capital preservation option and two fixed income options in their plans, and 94% recommend six equity options. One inflation-hedging option (83%), a global balanced strategy (47%) and an alternative strategy (36%) were also selected frequently.   

Firms believe emerging market debt (61%), followed by commodities (49%) and risk mitigation strategies (e.g. tail-risk hedging) (45%) would bring the most value as added classes within an asset allocation strategy. Firms believe global or non-U.S. equity (59%), TIPS (47%), global or non-U.S. fixed income (43%) and diversified real assets (41%) would bring the most value as added asset classes within the core investment lineup of a DC plan.  

More than three-quarters of firms either actively promote (22%) or support (55%) client interest in re-enrollment.  

In order of importance, the three ways consultants believe plan sponsors can minimize litigation risk include documenting investment policies and processes, evaluate and confirm reasonable plan investment fees, and established an engaged DC investment oversight committee.