Financial News

AB Closing Mutual Fund TDF Series - Thu, 11/14/2019 - 16:39
AllianceBernstein (AB) has decided to close its mutual fund target-date series, the AB Multi-Manager Select Retirement Funds, due to the growing popularity and lower costs of its collective investment trust (CIT) target-date series, the AB Multi-Manager Retirement Trust, Jennifer Delong, head of defined contribution at AllianceBernstein, tells PLANSPONSOR.

The funds will be closed as of June 25, 2020, Delong says. Investors may continue to make contributions to them up until that time, she says. “We are giving a long lead time to plan sponsors and advisers so that they can think about what they want to do. We will be reaching out to plan sponsors about our target-date CIT series.”

Both the mutual fund and CIT target-date series “are the same design, with a 60/40 mix of active and passive funds and Morningstar as the subadviser,” Delong says. She says that CITs’ market share of target-date fund assets has grown from 19% in 2012 to 39% in 2018. Because of the tremendous growth in CITs in target-date funds and their lower costs, “we believe the focus should be on CITs,” Delong says. “We really have seen a tremendous growth in CITs as retirement plan advisers learn about their benefits.”

Delong points out that AB’s CIT target-date series is now available to plan sponsors of all sizes, through a partnership with Wilmington Trust. The firm has also eliminated asset minimums for the funds.

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Categories: Financial News

The Role DC Plan Investment Menus Play in Participant Savings - Thu, 11/14/2019 - 14:24

A recent analysis by Alight Solutions found retirement plan participants invested in target-date funds (TDFs) are contributing less than those who don’t utilize TDFs.

However, a Vanguard report highlighted the extreme growth among these investment funds—93% of plans associated with the advisory firm have adopted TDFs as of 2018. That same year, TDFs accounted for more than one-third of total Vanguard defined contribution (DC) plan assets and over half of total DC plan contributions.

TDFs’ domination of the total fund landscape lends itself two questions: 1. As the fund increases in popularity, why are more participants contributing less to their retirement, and 2. Are there other funds that, while not as popular, incentivize participants to save more?

Sarah Holden, senior director of retirement and investor research at the Investment Company Institute (ICI), believes one cause linking to a savings shortage is automatic enrollment. As participants are automatically enrolled into their workplace’s 401(k) upon hiring, some will stick to the default rate, in the classic “set-it-and-forget-it” type of approach.  

“Nine out of 10 participants are in a plan where their employers put money in their account for them, but that depends on how much money [participants are] looking to put in,” Holden explains. “It’s the impact of auto-enrollment design and employer match.”

According to the Alight report, other causes for reduced savings include the belief that TDF returns will boost savings accumulation related to age among investors. Younger investors are likelier to save less (even if they’re likelier to meet their retirement goals), due to the notion that they will save more as they age. Others who remain full TDF investors may automatically think their returns will heighten their savings.

“People have been told not to pull all their eggs in one basket, and that’s what a TDF looks like to them,” said Rob Austin, head of Research at Alight Solutions, at the time the report was released. “They don’t understand that there’s diversification in underlying funds.”

Unlike TDFs, managed accounts are not diversified investment options. Instead, they allow participants to take the wheel on their own investments and are widely catered to the “do-it-yourself” investor. As participants are furthering their engagement with retirement accounts and investment options, can managed accounts persuade participants to save more?

It’s possible. A 2018 Alight Solutions analysis found employees who had consistently utilized managed accounts were more regularly adding contributions. The average contribution rate for managed accounts was 8.5% while TDFs only accounted for 6.1%, with 75% of managed account users consistently making contributions over a five-year horizon. Sixty-one percent of TDF users had continuously made active contributions.

At least one study has shown that a bigger core investment lineup is favored among DC plan participants. A new Morningstar study finds that participants in plans with larger core menus and who built their own lineups had more effective portfolios. Those participating in plans with 30 funds invested in an average number of 8.6 holdings.

“Large core investment menus appear to have the dual benefit of nudging more participants to use the default-investment option while getting self-directed participants to build more-efficient portfolios. When it comes to core menus, bigger is better,” the report says.

The Morningstar survey suggests that to raise savings, employers and advisers will need to reevaluate their core menu design, as well encourage participants to make better investment decisions. Holden echoed the same sentiment. Whatever investment path participants decide on—depending on what is offered as well— plan sponsors can maximize savings through their offerings.

“Ask yourselves what retirement savers are looking at in terms of their range of choices, and then what choices they are making,” she says.

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Categories: Financial News

DIETRICH Talks Annuity Payout Features - Thu, 11/14/2019 - 14:00

A webinar hosted by DIETRICH discussed the demand behind guaranteed income features in defined contribution (DC) plans, and how plan sponsors can offer latest tools to their participants.

“We really see that plans need to start offering easy access for the employees of the plan and help them manage those risks,” says Mark Doloughty, senior client relationship account manager at DIETRICH. “The way to do that is looking at single premium annuity payout features within the plan or options coming out of the plan.”

Ahead of potential passage of the SECURE Act, DIETRICH had announced its new DC retirement income annuity practice, ANNUA, back in June. During the recent webcast, the firm spoke about how incorporating a guaranteed lifetime income option for participants allows employees to manage financial risks throughout a lengthier retirement cycle, given the rise of longevity risk.

“The SECURE Act has put this idea at the forefront, explains Doloughty. “If it goes through, it’s going to be mandated that participants will see what their balance equals per month or year, and they’re going to want to know how they can get that.”

The firm noted a disconnect among plan sponsors, administrators and plan advisers who lack a large working relationship with annuity providers. With ADQ, the firm’s newest feature, plan sponsors can receive instant quotes from highly rated companies. Other offerings include institutional pricing, retirement account balance models and customizable integration.

In order to utilize ANNUA and its features, employers will need to input whether their plan identifies as qualified or nonqualified, whether it is a defined benefit (DB) or DC plan, the general demographic of the participant population, and whether certain participants are adding a spouse or survivor. Upon entering this information to DIETRICH’s system, employers should receive quotes from options in the marketplace, according to Doloughty.

“From there, we have a monthly benefit number, who the provider is, the annuity form, the guaranteed period and then the quote amount. We provide you an initial look from the marketplace with all this information,” he adds.

And while applying lifetime-income products such as annuities can be helpful to preserving retirement income, Doloughty concluded the webinar by stating the importance of maximization.  

“Participants have to look at what their preferences are. Are they looking at protecting longevity?” he asks. “So the annuity is a tool inside of this. In this case, the participant looks at their preference and says they’d like to have a piece disconnected. An ADQ could be the bridge to that.”

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Categories: Financial News
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