Newport Beach, California (June 15, 2020) – As more Americans shift from saving to spending in retirement, the majority of consultants of large 401(k) plans say plan sponsors should add a retirement tier and retiree-focused investment options to retain retirees and to help them manage their assets in retirement, according to the 14th Annual Defined Contribution Consulting Study published by PIMCO, one of the world’s premier fixed income investment managers.   

PIMCO surveyed 27 consultants and advisory firms representing 3,500 clients with over $4 trillion in plan assets as part of a larger study the firm undertakes to help plan sponsors understand the breadth of views and consulting services available within the defined contribution retirement market. PIMCO will publish additional results from the larger study later in the year.

Two-thirds of the consultants surveyed said they support the adoption of a retirement tier in defined contribution plans, while 66% report that plan sponsors prefer to keep 401(k) particpants in plan post retirement – an increase of 20 percentage points from five years ago. The top three recommended investment strategies for retirees are target-date, income-focused fixed income and multi-asset payout, according to the survey. Support for income-focused fixed income nearly doubled over the previous year.

“The focus of Plan Fiduciaries has shifted dramatically toward serving the needs of retirees in-plan, as individuals, more than ever, look to their 401(k) account to support spending in retirement,” said Rick Fulford, Head of PIMCO U.S. Defined Contribution. “Adding a retirement tier, retiree-focused investment options and related support focused on meeting the unique monthly income, liquidity and capital preservation needs of retirees would help those who no longer receive a paycheck better manage their retirement.”

Consultants also report that reviewing target date portfolios remains a top client priority.  Consultants said they favor off-the-shelf active/passive blend target date funds for plans with $200 million to $1 billion in assets under management, and they preferred custom for plans with assets above $1 billion. Moreover, fees, poor performance and concerns with current glide asset allocation are the main reason plan sponsors initiate searches for target date funds, the survey found.

Other findings from the survey include:

• Consultants surveyed recommended 9 core menu options for DC plans: 5 equity, 2 fixed income, 1 capital preservation and 1 inflation-protection.
• Within fixed income, Core/Core+ and Multisector Bond remain top recommendations. Within equities, U.S. and Non-U.S. Developed remain top choices, while Emerging Markets equity is now supported by two-thirds of consultants.
• Support for Environmental, Social and Governance (ESG) related strategies was up significantly, recommended by nearly half of consultants.
• Advocacy for active management remains strong in key market segments including U.S. and non-U.S. fixed income and Emerging Markets equity
• Consultants agree that custom allocation services provide superior portfolios. White label assets comprise 20% of total large market assets under advisement, while custom target date assets remain modest.

A summary of the survey’s key findings can be found here: https://www.pimco.com/en-us/dc-survey

About the Survey:

In its 14th year, the PIMCO 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. The Large Plan Market Report, a subset of the study, reflects the responses of 27 consulting and advisory firms, who serve over 3,500 larger plan clients with aggregate DC assets of approximately $4.3 trillion. All responses were collected from February 11, 2020 through March 27, 2020 amidst the market volatility attributed to the COVID-19 pandemic. The SECURE Act was signed on December 20, 2019 and the CARES Act was passed into law on March 27, 2020.