401k & Pension Planning

The New Defined Contribution Landscape

401(K) plans want more personalized retirement offerings

According to PIMCO Consultant Survey the majority of consultants surveyed said tailored solutions are a top priority for the industry. A summary of the survey’s key findings can be found here.

NEWPORT BEACH, Calif., May 23, 2022 (GLOBE NEWSWIRE) — Personalized solutions are becoming more attractive for plan sponsors who are encouraging those saving for retirement to stick with their 401(k) provider after they leave the workforce, according to the 16th Annual Defined Contribution Consulting Study conducted by PIMCO, one of the world’s premier fixed income investment managers.

Approximately 80% of advisory firms known as aggregators and 65% of large institutional consultants recommend personalizing retirement offerings for their clients who provide individual retirement plans. Meanwhile, consultants report 76% of plan sponsors prefer to retain retiree assets, up from less than half in 2015. Allowing flexibility in income distribution, adding retirement education/tools and communicating the value of staying in plan, were among the most popular consultant recommendations for plans seeking to hold onto retiree assets.

PIMCO surveyed 36 consultants and advisory firms, who serve over 37,000 clients with $6.9 trillion in total assets in defined contribution plans, as part of the firm’s effort to capture the breadth of views in the industry as well as services available amid rapidly changing demographics of plan participants. Published results were based on responses from firms with more than $10 billion in DC assets under management.

“A generational shift in how Americans plan for retirement is creating demand for a more dynamic approach to saving and technological advances have made solutions tailored to plan participants specific circumstances much more accessible to the broader public,” said Rene Martel, Managing Director and PIMCO’s Head of Retirement.

Other survey findings:

  • While most prefer to retain retiree assets in the plan, consultants and aggregators diverge on recommended retirement income solutions. Institutional consultants prefer Target-date funds (TDF) with regular level payout; aggregators prefer managed accounts as a retirement income solution.
  • TDFs continue to dominate as the near-unanimous recommended default option, with all consultants and advisors surveyed ranking it as their number one choice. Two-thirds of institutional consultants and advisors said reviewing TDFs was a top priority, indicating they are keeping a close eye on fees and performance.
  • Institutional consultants and aggregators are also recommending TDFs that blend active and passive management styles more in most plan size segments.
  • Interest in non-traditional Defined Contribution (DC) investments increasing. Over 80% of consultants surveyed consider ESG when selecting investment options. In addition, one-third of consultants believe private investments benefit all clients’ multi-asset portfolios; direct real estate, private equity and private credit receive highest consideration.
  • ESG continues to be a strong consideration when selecting investment options, emerging as a top three concern among plan sponsors.

Excerpts from the annual Defined Contribution Consulting study:

The COVID-19 pandemic has transformed the macroeconomy, spawned the Great Resignation and jolted markets – including changes that are accelerating evolution of the defined contribution (DC) landscape. At the same time, plan sponsors confront regulatory developments such as the SECURE ACT, substantial growth in assets, pressure to align plan features with participant needs and preferences, and disruptive trends such as inflation. Here we outline five key themes we believe plan sponsors will need to address as they cultivate and evolve their plans to meet participant demands and expectations.

1. Offer a more personalized approach to QDIA participants

Advances in technology, data and analytics are driving demand and expectations for more personalized experiences and customized solutions – and this is increasingly the case for qualified default investment alternative (QDIA) options.

To be sure, off-the-shelf target date funds (TDFs) have been – and continue to be in our view – an effective tool to guide participants through the retirement savings journey. However, the degree of personalization and appropriateness can be limited because TDFs are based chiefly on a single factor – the participant’s age.

Managed accounts, of course, are at the opposite end of the customization continuum. They generally offer greater personalization. Yet adoption has been historically limited by the need for participant engagement, perceived complexity and often significant incremental costs. In between these two poles of customization lie new solutions that may offer personalization without significant additional cost or burden on participants. These include personalized target date funds and dual QDIAs. They can respond to the increasingly wide range of circumstances and objectives investors face as they approach retirement.

A generational shift in how Americans plan for retirement is creating demand for a more dynamic approach to saving and technological advances have made solutions tailored to plan participants specific circumstances much more accessible to the broader public...

2. Seek the most from fixed income in a low-return environment

After a decade-long bull market, driven in its latter stages by pandemic-related fiscal stimulus measures, many asset classes have enjoyed significant and above-average returns. Not surprisingly, many expect more muted returns that could jeopardize retirement savers’ chances of achieving their objectives.

There are, of course, less desirable options. These include modifying spending profiles and living standards, or increasing investment risk exposure. Yet these have obvious drawbacks, especially for participants near or in retirement. Fortunately, active management of fixed income has the potential to overcome or offset a potentially lower- return environment. Thus, we believe sponsors should assess whether their plans offer an appropriate degree of active management. A thorough analysis of the data can lead one to argue that active fixed income management can offer strong potential for excess return generation, both in absolute and relative terms. Indeed, nearly 80% of active fixed income managers outperformed their median passive peers over the past five years ended 31 December 2021. This compares with less than 30% for active equity managers.

Importantly, potential excess return generated from fixed income allocations in DC plans could have a substantial impact on plan participant outcomes. Taking longevity of assets as an hypothetical example, the possible excess return generated by active management of fixed income allocations throughout a full plan-participant horizon could extend the longevity of assets in retirement by more than seven years, or approximately 26%. Given these trends, we suggest DC plan sponsors make it a priority to evaluate whether participants are getting the most from fixed income allocations – both on core menus and within the QDIA option.




About the Survey
In its 16th year, the PIMCO US Defined Contribution Consulting Study seeks to help consultants, advisors and plan sponsors understand the breadth of views and consulting services available within the defined contribution (DC) marketplace. Our 2022 study captures data, trends and opinions from 36 consulting and advisory firms who serve over 37,000 clients with aggregate DC assets in excess of $6.9 trillion. All responses were collected from January 4, 2022 through March 7, 2022.
PIMCO is one of the world’s premier fixed income investment managers. With our launch in 1971 in Newport Beach, California, PIMCO introduced investors to a total return approach to fixed income investing. In the 50+ years since, we have continued to bring innovation and expertise to our partnership with clients seeking the best investment solutions. Today we have offices across the globe and professionals united by a single purpose: creating opportunities for investors in every environment. PIMCO is owned by Allianz S.E., a leading global diversified financial services provider.
The survey results contain the opinions of the respondents at the time of the survey and may not reflect current opinions or investment strategies. These results may or may not match the views of PIMCO and are not intended to be reflective of PIMCO’s opinions on the market or any particular investment style or strategy. This material is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
Except for the historical information and discussions contained herein, statements contained in this news release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the performance of financial markets, the investment performance of PIMCO’s sponsored investment products and separately managed accounts, general economic conditions, future acquisitions, competitive conditions and government regulations, including changes in tax laws. Readers should carefully consider such factors. Further, such forward-looking statements speak only on the date at which such statements are made. PIMCO undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.