Active legislation to enhance and evolve DC, including enabling plan access through a multiple employer plan system, increasing auto-escalation limits and offering fiduciary safe harbor around retirement income options, will further sponsors’ goals of altruism.
Target Date Trends
New flows to the default, specifically target date funds (TDFs), continue to grow among new, younger participants. By 2021, these strategies are predicted to capture 85% of participant contributions, according to Cerulli Associates’ 2016 US Defined Contribution Distribution report.
Respondents help to reconcile the industry impression that TDFs dominate with the reality of asset distribution across the core menu. Forty-three percent believe that the majority of their participants are invested in the default. This leaves nearly 60% suggesting that a different AUM distribution, split with or shifted toward the core menu, is in place. But with time and in keeping with Cerulli’s forecast, this distribution is likely to change.
According to sponsors, for those participants who are new to the plan and not automatically enrolled, there is a 31% uptick to otherwise steady interest in target date funds. It’s reasonable to infer that the next generation is seeking the sort of “point and click” simplicity in retirement saving that can be found in other facets of life. Sponsors would agree — 69% believe the increase was due to TDFs’ attractive simplicity, and 54% believe that younger savers joining the plans are driving the change.
Given the lead role the participant plays in navigating the retirement saving and spending experience, simplicity has become a defining dimension. In fact, sponsors ranked “simplicity and ease of use” as the plan dimension that participants most valued — followed fast by the “ability to access advice.”