Newport Beach, California (July 26, 2023) – Approximately 70% of large institutional consultants and a growing cohort of advisory firms, known as aggregators, continue to focus on retaining retiree assets, according to the 17th Annual Defined Contribution (DC) Consulting Study conducted by PIMCO, a global leader in active fixed income with expertise across public and private markets.
Retaining retiree assets allows sponsors to maintain 401(k) plan scale and purchasing power, allowing for potential cost savings for clients, according to institutional consultants. In addition, advisory firms reported that retaining assets would help them provide former employees with better retirement outcomes. Allowing flexibility in income distribution, adding retirement education/tools, and including retiree-focused investment options were among the most popular consultant recommendations for plans seeking to hold onto retiree assets.
PIMCO surveyed 36 consultants and advisory firms, which serve over 25,000 clients, 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 $7.3 billion in DC assets under management.
“As a generation of working Americans approach retirement, employers must expand their suite of offerings to include not just savings and investing solutions for its employees, but also thoughtful guidance on spending as workers transition to retirement,” said Rene Martel, Managing Director and PIMCO’s Head of Retirement. “Personalized retirement solutions will continue to be a key theme in the near future, particularly in default options.”
Other survey findings:
- Target-date funds (TDF) continue to dominate as the unanimous recommended default option, with nearly all consultants and advisors surveyed ranking it as their number one choice. Key indicators in evaluating TDFs include glide path, fees, and quality of underlying funds.
- Consultants and advisors diverge, however, on what kind of default TDF retirement income solution will prove most popular. Advisors expect to see the most growth in “dual-QDIAs,” hybrid solutions that begin as a TDF then, at a certain point, transition into a managed account. Institutional consultants are split between traditional TDFs and “hybrid” solutions such as dual-QDIAs and TDFs with embedded guarantees.
- The majority of consultants believe participants in managed account retirement solutions (MAs) do not regularly keep their personal information current, and instead believe that recordkeeping systems contain enough participant data to help personalize portfolios.
- The Department of Labor’s “Final Rule,” which defined fiduciaries’ duties in regards to Environmental, Social and Governance (ESG) investing, had little to no impact among consultants; however, concerns with legislation was reported as the top reason for why plan sponsors may avoid ESG adoption.
- Consultants and advisors both strongly prefer actively managed or a blended active/passive approach for “core menu options,” the selection of investment solutions offered to investors by their plan sponsors. Plan menu sizes—the number of options offered—have remained consistent in recent years.
A summary of the survey’s key findings can be found here: PIMCO.com/dc-survey
About the Survey
In its 17th 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 2023 study captures data, trends and opinions from 36 consulting and advisory firms who serve over 25,000 clients with aggregate DC assets in excess of $7.3 trillion. All responses were collected from January 17, 2023 through March 22, 2023.