Administration December 7, 2017

More DC Plan Sponsors Looking to Outsourced Fiduciary Services

The DOL fiduciary rule, though not yet fully implemented, is providing a tailwind for this trend, Cerull Associates says.

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The Department of Labor (DOL) conflict of interest rule provides a tailwind for the adoption of outsourced fiduciary services in the defined contribution (DC) plan market, according to the latest research from Cerulli Associates.

“Today, it can be difficult to have a DC-related conversation without someone using the terms ‘3(21)’ or ‘3(38),’ which have become DC industry shorthand for nondiscretionary versus discretionary advice,” states Jessica Sclafani, associate director at Cerulli. “Because of the growing awareness of the role and responsibilities of a fiduciary—among plan sponsors and their intermediaries—there is more attention being paid to fiduciary service providers that will act in an ERISA [Employee Retirement Income Security Act] 3(21) or ERISA 3(38) capacity relative to a DC plan’s fund lineup.”

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There is a spectrum of fiduciary services offered to DC plans, according to Cerulli. “Baked in” 3(21) and 3(38) fiduciary services embedded in the recordkeeper platform are more common to plans with less than $5 million in assets. “Baked in” refers to when a recordkeeper will engage a provider to conduct further due diligence on the investment options available on a given platform to generate a narrowed list of funds for which the provider will serve as an ERISA 3(21) or ERISA 3(38) co-fiduciary. Providers are typically Envestnet, Mesirow, Morningstar and Wilshire, and products are typically off-the-shelf with a low-touch service model.

For the $5 million to $500 million DC plan market, advisers and consultants offering 3(38) discretionary investment advice are more common. Providers are typically retirement specialist advisers and consultants as well as boutique DC conultants, using a medium-touch service model.

For DC plans with greater than $500 million in assets, the OCIO model is most common, using full customization built for specific plans. These are high-touch service models delivered by Tier-1 investment consultants, such as Callan, Mercer, NEPC and Willis Towers Watson, to name a few.

Information about purchasing the report, U.S. Retirement Markets 2017: The Rise of Fiduciary Services, is available here.
Data and Research December 7, 2017

Americans See Employer Role in Retirement Savings and Health Insurance Decreasing

However, around one-third say employer-provided benefits will be most important to them within the next 10 years.

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Over the next 10 years, Americans expect the role for individuals and government entities in individuals’ financial security to be larger, according to results of a survey by the American Benefits Council.

More than half (52%) think individuals will play a larger role in health insurance and retirement savings, while 45% say the federal government will. Thirty-nine percent predict state governments will play a larger role in health insurance and retirement savings, while only 29% expect employers to do so.

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Among council members, nearly eight in 10 (79%) predict individuals will play a larger role in health insurance and retirement savings, while 35% say federal governments will and one-quarter say state governments will. Only 19% think employers will play a bigger role in health insurance and retirement savings.

Among those employed, 35% say employer-provided health insurance benefits will be most important to them within the next 10 years. Thirty-one percent chose an employer-provided pension or defined contribution (DC) plan as their first choice. Sixty percent of those surveyed would take more generous, higher quality benefits in exchange for less take home pay, while 34% chose take home pay over more generous benefits.

A majority of working Americans (56%) trust the individual market most for opportunities to save for retirement. Only 27% indicate they trust employers the most, and only 9% trust the federal government the most.

However, for high-quality health care coverage, 43% trust employers the most, while 28% trust the individual health insurance market and 13% trust the federal government.

Public Opinion Strategies conducted a survey of 800 registered voters for the American Benefits Council from November 5 to November 9. The full survey report is here.

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