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MFS: Sponsors Expect to Reevaluate Investment Lineups
The investment reviews will happen as plan sponsors are even less confident than are participants about employees’ ability to retire when they want to, MFS’ DC Plan Sponsor Survey reveals.
Plan sponsors are concerned about retirement readiness, regulatory and administrative burdens and are putting major focus on re-evaluating their investment lineups, finds MFS Investment Management research.
Almost half of plan sponsors surveyed (45%) have either made or are considering making changes to their fixed income offerings and more than a third (35%) have made or are considering adjusting their inflation-protected investment offerings in the next 12 to 18 months, found the MFS 2023 DC Plan Sponsor Survey, “Building Better Outcomes.”
The survey, “asked a number of questions around the investment lineup and because of our participant survey—and finding that participants are thinking differently about retirement because of inflation—[participants] are more likely to think about their investments and change them to become more conservative,” explains Jeri Savage, retirement lead strategist for investment solutions at MFS.
The MFS research revealed retirement plan sponsors are increasingly concerned by volatility and inflation as more than half (56%) of all plans say they expect to evaluate their investment lineup in the coming year.
The newest findings aim to complement MFS’ 2023 Global Retirement Survey, which compiled more than 4,000 retirement plan participant’s responses in four countries, was published in October 2023 and MFS’ Retirement Outlook 2024, published in January
Three-quarters of participants said they expected to need to save more for retirement than they originally thought because of inflation, the Global Retirement Survey found; and 61% said they expected to become more conservative in their investments as a result of inflation, according to MFS’ 2024 Outlook.
Against the backdrop of their participants’ financial concerns, sponsors are more likely to add fixed income and inflation-protection options to their investment offerings than equity options, MFS found in the new report.
“[Almost an] equal number [of sponsors] are contemplating changes to the fixed income and equity portions of their menu, but the changes that are contemplating are a little bit different,” adds Savage. “In the fixed income space, they say they’re more likely to be adding to the menu and in the equity space, they’re more likely to be either removing options or changing their managers.”
In addition to concerns about investment offerings, the survey found that 55% of plan sponsors cited the “changing regulatory and legislative landscape” as “keeping them up at night.” Litigation risk, administrative burdens and “figuring out retirement income solution(s) for the plan” ranked next, and all were considered more worrisome than overall participation rates, fee pressures and having the right number and types of investment options.
Regarding the plan features that sponsors can add because of the passage of the SECURE 2.0 Act of 2022, the survey found emergency savings was most popular, with 45% of respondents selecting it overall.
When asked what changes they would make if costs were not a factor, “the answers change considerably, with 57% indicating they would match student loan payments, and 76% indicating they would create a vehicle for, or provide access to, 401(k) assets for emergency savings,” stated the MFS report.
“This demonstrates that sponsors recognize their participants could benefit from these features.”
Regarding changes they have made or plan to make to their investment offerings, nearly one-fifth of sponsors (18%) are considering investment lineup changes to their fixed-income investments in the next 12 to 18 months, 18% have added options, 7% replaced managers and 7% reduced or removed options.
For equity investment adjustment, 16% of sponsors are considering changes in the next 12 to 18 months, 9% have added options, 12% replaced managers, and 7% reduced or removed options.
Sponsors considering changes to their inflation-protection investments in the next 12 to 18 months measured 11% of responses, 17% have added options, 4% replaced managers and 3% reduced or removed options.
“Participant behavior is driving some of this,” adds Savage. “[Sponsors are] seeing participants become more conservative in their investments and they want to make sure they have the right array of options to do so.”
While sponsors are considering investment menu changes, nibbling at the margins could be the result, MFS data suggests.
Sponsors are more likely to replace equity managers than fixed income managers, and qualified default investment alternatives, “tend to see fewer changes than core menu options,” write the report’s authors Savage and Jonathan Barry, managing director of investment solutions.
For sponsors plotting QDIA lineup changes, 10% are considering changes, 11% have added options, 2% replaced managers and 1% reduced or removed options.
The 2023 MFS DC Plan Sponsor Survey was conducted from September to November 2023 with 141 plan sponsors of varying asset sizes. Plan sponsors were based in the U.S. and sourced through the DCIIA Plan Sponsor Institute.
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