The Siloed Roles Undergirding Plan Sponsors Continue to Blur

Plan sponsors globally are increasingly embracing alternate retirement plan management and administration models that blur traditional roles, according to Columbia Threadneedle and Russell Investments.

The traditional roles for providing defined contribution plan sponsors with plan governance and strategic product development support from consultants and asset managers are evolving to become increasingly shared, the firms argue in a thought leadership article, Defined Contribution: Who’s flying the plane?

Plan sponsors are continuing to move away from a model where responsibility for plan functions was managed in silos—a linear relationship for managing the plan—to outsourcing daily investment decisions via either an internal subcommittee or an outsourced chief investment officer, explains Kerry Bandow, head of defined contribution solutions at Russell Investments.

“I think plans were somewhat slow, however, to adapt their governance,” he says. “Given the competing priorities of committees, our view is the plans should look to outsource as much as they can and that’s one of two ways: outsourced either to an internal subcommittee or perhaps to an OCIO provider if that makes sense for them.”

Plan sponsors will want to explore a broader model for the plan with shared responsibility and collaboration—across strategic product development—with closer connections between asset managers and consultants because that has benefits for both the employer and retirement plan participants, Bandow argues.

He says that such a model could benefit a defined contribution plan specifically because it “allows [plan sponsors] to be focused on a strategy: if their objective is to fully fund their [defined contribution] liability, outsourcing some of those decisions allows them to spend the precious time that they have to think about the plan, thinking about strategies to improve outcomes.”

Product Collaboration

Collaborations on product development are connecting consultants with the plan sponsor’s asset manager and bringing options to the investment committee for review, according to the paper. Consultants and asset managers are assisting plan sponsors to include strategic product developments, Bandow and Shapiro wrote in the thought leadership article.

Collaborations in a new model have included multi-manager funds with so-called high conviction mandates, smart beta exposures and incorporating environmental, social and governance (ESG) investing strategies, according to Bandow.

In a high-conviction mandate, an asset manager will on its own or with a sub-investment adviser marshal specialist knowledge to overweight a portfolio with certain investments and strategies by hand-picking high-quality investments. Smart beta investing seeks to combine the benefits of passive investing and advantages of active investments.

There are two specific areas where consultants and asset mangers are being asked to take a larger role, Bandow and Shapiro say. 

Consultants are becoming directly involved in strategic product development with asset managers, Bandow and Shapiro argue in the paper: “Instead of accepting standard products that are in the marketplace, consultants are working with managers to build solutions aimed to deliver truly differentiated options for participants.”

Consultants and Asset Managers

Consultants and asset managers are partnering to bring their specific expertise to bear for plan sponsors, which can allow the plan sponsor investment committee to focus its time more efficiently, adds Jason Shapiro, director of consulting relations at Columbia Threadneedle Investments.  

“A lot of the trends, the evolutions, that we’re seeing are being developed because of that realization from the industry that [defined contribution] plans need to do more and practitioners [are] thinking about how to achieve that,” he says.

Consultants and asset managers, using the new model with plan sponsors, are also assisting plan sponsors to include the strategic products developed, Bandow and Shapiro wrote in the paper. 

Fewer available defined benefit plans for private sector workers—replaced by defined contribution plans where individuals are responsible for the investments—that provided participants with dependable monthly income have accelerated the trend to outsourced plan governance, adds Shapiro.

“Part of this has happened out of necessity,” he says. “[Because of] the phase out of [defined benefit] plans, defined contribution plans are being asked to do a lot more and potentially being asked to help participants achieve objectives that they weren’t historically designed to do.”

Bandow agrees and adds that, “Historically, [defined benefit plans] provided the retirement [savings] and these [defined contribution] plans were viewed as a supplemental savings plan—[that’s] no longer the case.”

The alternate model is leading to additive options beyond consulting and OCIO management, that are emerging, whereas it once was thought there were only two choices for assistance, Bandow points out.

“What we’re seeing now is those are bookends and the fact is there’s a spectrum that allows organizations if they choose to outsource different things,” he says. “It could be as simple as contracting and fee negotiations.”