U.S. Employers Looking to Enhance 401(k) Investment Structures, Towers Watson Survey Finds
September 30 2014 - 9:05AM
Business Wire
More companies eyeing custom target-date
funds, outsourcing DC plan oversight
With millions of workers now relying on 401(k) plans as their
primary retirement savings vehicle, U.S. employers are enhancing
the investment structures of those plans, according to a new survey
by global professional services company Towers Watson (NYSE:
NASDAQ: TW). This includes replacing single, stand-alone investment
options with multi-manager, white-label choices, implementing
custom target-date fund (TDF) solutions and outsourcing all or
portions of their 401(k) plan oversight.
“Employers are taking a close, hard look at the investment
structures of their defined contribution (DC) plans, given the
impact plan structures can have on the retirement outcomes,” said
Sue Walton, director in Towers Watson’s Investment business. “In
addition, many plan sponsors are beginning to embrace more complex
and sophisticated strategies and structures as the challenge of
meeting participant and plan needs increases.”
According to preliminary results from the Towers Watson 2014
Defined Contribution Survey, 40% of the 457 U.S. employers surveyed
recognize that using a multi-manager, white-label investment
strategy is a more efficient approach to active management than
single, stand-alone active options. Additionally, about half of the
respondents see the value of custom TDFs.
“Plan sponsors recognize that DC plans with investment lineups
that include many single, stand-alone active funds are not the most
efficient approach and have also produced subpar investment results
for participants. Now, employers are looking at multi-manager,
white-label options that promote fewer and simpler diversified
options, which are more likely to lead to better outcomes,” said
Walton.
According to the Towers Watson survey, 22% of plan sponsors have
already implemented a custom TDF solution, while 27% may explore
implementing one. “Plan sponsors are beginning to see the value in
tailoring their TDF offerings. Unbundling the key decision points
enables employers to align the glide path, portfolio construction
and implementation of the funds to their plan objectives and
participant demographics,” said Lorie Latham, director in Towers
Watson’s Investment business. “We believe the Department of Labor’s
release of TDF tips has influenced plan sponsors to evaluate custom
TDF solutions as a viable alternative. Plan sponsors also
understand the importance of their TDF offering and know they need
to get it right.”
According to the survey, a growing number of plan sponsors are
outsourcing the oversight of their DC plans. One-third of
respondents currently delegate either all or a portion of their
plans’ oversight, or may be interested in doing so.
“With DC plans now requiring more time and expertise from plan
sponsors than ever before, it’s not surprising to see that
outsourcing plan oversight is gaining traction,” said Walton. “As
the investment opportunity set becomes increasingly more complex
and the stakes get higher for the success of DC plans, employers
need to consider the right governance equation, which may include
seeking third-party partnerships.”
About the Survey
The Towers Watson 2014 Defined Contribution Survey was conducted
in June and July 2014, and includes responses from 457 large and
midsize U.S. companies that sponsor a DC plan. The full survey
results will be available in October.
Towers Watson Investment
Towers Watson’s Investment business is focused on creating
financial value for institutional investors through its expertise
in risk assessment, strategic asset allocation, fiduciary
management and investment manager selection. It has over 800
associates worldwide, assets under advisory of over US$2 trillion
and over US$65 billion of assets under management.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global
professional services company that helps organizations improve
performance through effective people, risk and financial
management. The company offers consulting, technology and solutions
in the areas of benefits, talent management, rewards, and risk and
capital management. Towers Watson has more than 14,000
associates around the world and is located on the web at
towerswatson.com.
Towers WatsonMedia Contacts:Ed Emerman, +1
609-275-5162eemerman@eaglepr.comorBinoli Savani, +1
703-258-7648binoli.savani@towerswatson.com
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