PSNC 2021: The Modern DC Plan Investment Lineup

Leading asset management product development and sales executives came together with a representative from Crate and Barrel Holdings, the PLANSPONSOR of the Year winner in the Corporate 401(k) $150MM-$300MM category, for “The Modern DC Plan Investment Lineup” session, kicking off day three of the 2021 virtual PLANSPONSOR National Conference (PSNC).

There was unanimous consensus among the speakers that the time has come for the retirement plan industry to treat participants like the sophisticated end consumers that they ultimately are.

Near-retirees are acutely aware of their need for help constructing a retirement income strategy, the speakers said. And, while some Millennials, Generation Xers and even Generation Zers are more aware than their predecessors of the earnings and savings power they will generate over the course of their lifetimes, most are not, and they will need the help of plan sponsors, retirement plan advisers, recordkeepers and asset managers to see the whole picture when it comes to their 401(k)s and other defined contribution (DC) plans.

That whole picture should include a retirement income component, even at the start of a worker’s career, via a fixed-income annuity, said Roger Marinzoli, senior managing director, head of corporate retirement solutions business development at TIAA. A more comprehensive approach to serving retirement plan sponsors and their participants must also take into consideration the six- or seven-figure savings that a retiree will leave the workforce with, he added. He said TIAA believes that plan sponsors and asset managers can work in tandem to help those retirees manage lifetime earnings responsibly, throughout retirement.

Putting it simply, the qualified default investment alternative, or the QDIA, can be a hybrid that starts with an off-the-shelf target-date fund (TDF) for those early in their careers and shifts at a certain age, say 55, to a managed account or custom TDF with an insurance component, so that when an individual retires, all he needs to do is to hit the “easy button” to get retirement income flowing, Marinzoli said.

He assured the plan sponsor audience that investment management firms, insurers, regulators and legislators are working together to create a dynamically new approach to helping participants with their investments throughout their careers and beyond. For its part, TIAA has served more than 5 million people in K-12 and higher education world with a version of this model for the past 100 years, Marinzoli said. “There are a lot of other very good insurance companies doing this,” he noted.

In short, the days of a 401(k) plan working just as an accumulation vehicle are over, other panelists agreed. The industry is now beginning to collaborate on “decumulation,” i.e., various types of annuities and plain old retirement income.

In fact, this model is now starting to include “wealth accumulation strategies [and a] ‘dynamic’ QDIA for those approaching retirement,” said Jeremy Yonan, director of total rewards, Crate and Barrel.

Spurred by a necessary change in recordkeepers, Crate and Barrel looked at the demographics of its plan and discovered that 44 was the median age of its participants, Yonan said. This information got the investment committee into a hybrid QDIA/retirement income mindset for those approaching retirement, he said. “We did a full plan reset and included professionally managed accounts.”

Then, when COVID-19 hit the U.S. in March 2020, the process was only sped up as Crate and Barrel’s investment committee, recordkeeper, fund managers and retirement plan adviser moved to “alternative modes of communication,” he said.

For the first time, many participants were interested in having face-to-face live conversations with investment managers. The number of participants using the advisory services in the Crate and Barrel retirement plan soared from 136 before the pandemic, to 3,250, he noted. “I was thrilled,” Yonan said, saying these figures surpassed what he was already pleased with. The firm also saw an increase in plan assets from $210 million to $250 million and an increase in participants’ deferral rates, from 7.8% to 8.7%.

The success that Crate and Barrel experienced in its QDIA upgrade underscores the fact that any other plan sponsor looking to take on such a challenge “needs a communication strategy,” said Jennifer Doss, senior director, DC practice leader, CAPTRUST.

Plan sponsors who are intrigued by Crate and Barrel’s approach should take up the conversation at the retirement committee level when there is a catalyst, such as a change in recordkeepers or other key providers, Doss added. “That is an excellent time” to make such a bold change, she said.

But sponsors might be overwhelmed with all the new retirement income products now coming to market, thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act, said Robert W. Crothers, retirement group head of product and strategy, BlackRock.

“We aren’t trying to make your lives more difficult,” Crothers told the PSNC audience. “While there’s no ‘silver bullet’ for any one plan sponsor,” one rule of thumb to keep in mind as a sponsor starts to wade through this new retirement plan dynamic is that it should try to find the right solution for the most number of people in its plan, he said.