Watch our Global Head of DC, David Ireland, discuss three target retirement strategy innovations that leading plan sponsors are using to unlock plan value:
As one of the world's largest investment managers, we believe we have an obligation to understand and solve for investor needs. As a result, the core to our strategy is putting clients and their employees at the center of this strategy and taking time to sit back and listen and gain fresh perspectives. Here are three ways that leading plan sponsors are innovating.
First, focusing on the default—plan sponsors are increasingly
recognizing that their target dates solution needs to tie to any unique plan
characteristics. So the way we've been engaging with plan sponsors has been to do what we refer to as an ecosystem analysis, where we're looking at individual age cohorts and trying to understand if there are any meaningful,
differentiated, and consistent factors that need to be adjusted for. Performing this exhaustive analysis is simply good hygiene from our perspective.
In some instances, plan sponsors will decide that no change is necessary. In other instances, we'll identify a factor that's meaningfully different from a standard assumption that will warrant reconsideration of the default investment. Second, leading plan sponsors are increasingly
understanding that automatic features win.
We've seen plan sponsors embracing things like automatic enrollment and auto escalation. Others are taking it a step further, and they're doing things like automatically re-enrolling their population on an annual basis, nudging participants, moving them in the direction that's going to be best for them from a behavioral perspective, pushing them towards the default, where outcomes simply are better. Lastly, we've been seeing plan sponsors focusing on cost.
How can they take cost out of this system? Now, this can be fees, but it also can be vehicles. Are there ways that you can add a vehicle? Can you move away from a traditional mutual fund construct to something like an ERISA collective fund.
ERISA collective funds typically offer a better fee structure, better trading, and better dividend recapture. Now, this is a bit of a nuanced point. But if you look at a traditional international equity fund, an ERISA strategy versus a mutual fund, the ERISA collective is going to capture 20 basis points of additional value from dividend recapture. 20 basis points over a 20-year period? Compounded, that's 5% of additional growth. Over the life of a savings plan, that could be tens of thousands of dollars in increased wealth for the participant.
At the end of the day, defined contribution plans are becoming the primary retirement savings vehicle for the majority of Americans. And we're encouraged by the fact that leading plan sponsors are taking time to innovate. And we're going to continue to listen.
This video is provided for informational purposes only and should not be considered investment advice or an offer for a particular security or securities. The views and opinions expressed by the speaker are those of his or her own as of the date of the recording, and do not necessarily represent the views of State Street or its affiliates. Any such views are subject to change at any time based upon market or other conditions and State Street disclaims any responsibility to update such views. These views should not be relied on as investment advice, and because investment decisions are based on numerous factors, may not be relied on as an indication of trading intent on behalf of State Street. Neither State Street nor the speaker can be held responsible for any direct or incidental loss incurred by applying any of the information offered. Please consult your tax or financial advisor for additional information concerning your specific situation. This video cannot be used for commercial purposes.
State Street Global Advisors and its affiliates have not taken into consideration the circumstances of any particular investor in producing this material and are not making an investment recommendation or acting in fiduciary capacity in connection with the provision of the information contained herein.
This video may contain certain statements deemed to be forward-looking statements. Please note that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. None of State Street Global Advisors or its
affiliates (“SSGA”) are acting in a fiduciary capacity in connection with the provision of the information contained herein. SSGA’s role as a fiduciary with respect to the products and services described herein commences once SSGA has been retained to act in a fiduciary capacity pursuant to a written agreement and receipt of a fee. Prior to such time, SSGA is not undertaking to provide impartial investment advice or to give advice in a fiduciary capacity in connection with the sale or distribution of the products or services described herein. SSGA has a financial interest in the sale of our investment products and services. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
State Street Global Advisors, 1 Iron Street, Boston, MA 02210-1641.
©2022 State Street Corporation – All Rights Reserved
EXP: July 31, 2023