- Retirement Research Center
|Investment Options and Best Practices|
Welcome to DCIIA's online resource library for DCIIA and member thought leadership. If you have resources to contribute in this topic area contact us at email@example.com.
DCIIA posts links to member content as a service to our members, plan sponsors, and the broader retirement industry. Some sites may require registration. Posting these links does not imply endorsement and we are not responsible for non-DCIIA content. Please advise us of any broken links or other updates.
As the first in a series of best practices guides on sustainable investing within defined contribution (DC) plans, this paper seeks to provide plan sponsors with a base level of knowledge about sustainable investing and integration by focusing on areas that have historically been misperceived.
Custom Target Date Fund (cTDF) Survey
A report on the DCIIA Retirement Research Center's key findings from its inaugural custom target date fund (cTDF) survey, the retirement industry’s first asset allocation analysis of custom target date strategies.
DCIIA has leveraged member expertise to prepare a comprehensive overview that represents input from our diverse membership base -- asset managers, consultants, recordkeepers, and more. To view highlights of this content as a web page, please visit “DC 101.”
The Role of Real Estate in DC Plans
This slide-deck format piece provides an overview of real estate as an asset class and discusses investment merits, implementation considerations, common operational issues, and offers a decision tree.
A Guide to Commonly Used DC Plan Investment Vehicles
This slide-deck format publication is intended to provide a better understanding of the various investment vehicles that are commonly used within DC plans, their benefits and drawbacks, and considerations for deciding which structure to use.
Capturing the Benefits of Illiquidity
This slide-deck format piece outlines best practices in integrating illiquid investments into defined contribution plan portfolios.
Qualifying Longevity Annuity Contracts (QLAC)
This resource seeks to provide clarification on common questions that plan sponsors and their advisors may have regarding regulations issued by the U.S. Treasury and IRS in July 2014 regarding longevity annuities.
DCIIA believes that DC plan sponsors should consider adding an investment offering that provides better risk balance, in an attempt to enhance returns and to reduce the volatility that the typical plan participant experiences. One solution is to provide access to an asset category broadly referred to as “alternatives.”
What's on the Investment Menu?
This paper seeks to provide a framework for designing DC menus to improve plan participant experiences and outcomes. We review how menu design has evolved historically, discuss the objectives and philosophies of various sponsors, define menu construction frameworks, and present considerations for creating an effective investment menu.
The "To vs. Through" Target Date Debate
While many DCIIA member firms hold definite views about the most appropriate way to construct a target date asset allocation and glide path, in this paper we have worked collectively to create an objective and balanced presentation of the factors to be considered in selecting or building target date portfolios.
Considerations for Implementing a Custom Target Date Approach:
This guide is designed to help plan sponsors understand the operational considerations when deciding to offer custom target date funds in a defined contribution plan.
Willis Towers Watson notes: “From an investment perspective, we believe the qualified default investment alternative (QDIA) is the most direct way to impact retirement readiness given the increase in auto-features such as automatic enrollment (recent data show that 73% of plans automatically re-enroll versus 52% in 2009).”
Diversification is Good (Right?)
Northern Trust provides investment insights, noting that “Investors are getting used to the decade-long bull market, but economic cycles haven’t gone away. Their portfolios should be prepared.”
Morningstar writes: “In this paper, we explore the impact managed accounts can have on participants’ savings and investing habits based on whether they’re on track to meet their retirement goals and whether they built their own portfolios (or picked from portfolios already built) before entering a managed accounts service.”
Unfolding the Managed Accounts Fee Enigma
In this blog post, Aon notes: “Based on our understanding of the managed accounts service models as well as ERISA requirements, we believe that managed accounts providers need to be more proactive in disclosing direct or indirect compensation received from DC plan assets as well as shared revenue between managed accounts providers and recordkeepers.”
Cohen & Steers summarizes the fiduciary requirements imposed by ERISA on sponsors of participant-directed defined contribution plans for the selection of investments, discusses the considerations for selecting real estate as one of the asset classes in a plan and also notes the factors to be considered in selecting a specific type of real estate investment.
REITs: Answering the Call for DC Plan Diversification
Cohen & Steers notes: “For fiduciaries looking to enhance diversification in defined contribution plans, we believe REITs can be a simple and effective addition to investment lineups, offering a long track record of benefiting investors and characteristics that may be well suited to the needs of DC plans.”
The Future of Investment Management
The Fidelity Global Institutional Investor Survey: 11th Edition
The Changing Investment Ecosystem
This special report by the Fidelity Research Institute focuses on one topic from the survey: How the investment industry itself will be transformed over the next seven years.
An overview of the Fidelity Global Institutional Investor Survey
The Value of Managed Account Advice
A new Vanguard research paper shows that most participants benefit from managed account advice.
Great-West Financial | Empower Retirement's feature-by-feature estimate finds that a robust retirement managed account provides 55 to 92 basis points (bps) of value for unengaged participants and 152 to 258 bps for engaged participants. In presenting a method for valuing managed accounts, we also delineate the menu of features that may be offered through a managed account investment option in a defined contribution plan.
Considering Custom for Your DC Plan
Vanguard’s discussion of the potential benefits and drawbacks of including nonstandard investment options in a defined contribution plan.
Does a Custom Portfolio Suit Your Needs?
Vanguard partners with plan sponsors and consultants to analyze the appropriateness of custom alternatives for DC plans.
A report from WillisTowersWatson, in conjunction with Georgetown University's McCourt School of Public Policy Center for Retirement Initiatives, notes that an advantage offered by TDFs is that the underlying investments can be broadened to include asset classes that have traditionally benefitted other types of long-term investment pools, such as DB plans, without increasing complexity for the participant.
Wellington Management writes: “To combat the three main risks to retirement security — longevity, drawdown, and inflation — we believe target-date portfolios should aim to protect against downside risk, particularly near retirement; be truly diversified; and be actively managed.”
Considering Custom for your DC Plan
This Vanguard commentary discusses the potential benefits and drawbacks of including nonstandard investment options, particularly white-label funds, in a 401(k) plan. Does customization provide potential benefits to plan participants that outweigh any additional responsibilities and costs assumed by the plan sponsor?
Vanguard notes that the way sponsors design defined contribution plans can help reduce costs and risk exposure for participants.
In part three of a series on ESG, MSCI focuses on how ESG can be integrated into passive allocations using MSCI ESG Ratings, which, while not indicative of future results, provided better risk-adjusted returns from August 2010 to December 2017 than the MSCI ACWI Index.
Published May 2018 by Jed Petty, Brendan MacKenzie and Matt McMenamy of Wellington Management. To help plan sponsors who are constructing or modifying an investment menu, this paper can serve as an educational piece highlighting the main similarities and differences between CITs and mutual funds.
Vanguard invites you to discover ways to help strike a balance between active and passive investment strategies.
Wells Fargo Asset Management's report reveals that ESG investing can be a keystone in the pursuit of retirement plan success—the answer lies in engaging participants’ minds, hearts, and souls.
Vanguard invites you to learn why plan sponsors should always look at the big picture when evaluating target-date retirement funds (TDFs).
Callan notes that non-qualified deferred compensation plans (NQDCs) may look and sound like qualified DC plans, but the two are actually quite different. NQDC plans are targeted at a small number of high-paid employees, and managing the investment menu and associated liabilities of NQDC plans is quite different from managing a DC plan. And assuming certain preliminary conditions are met, NQDC plans are usually not subject to the fiduciary and reporting requirements of the Employee Retirement Income Security Act (ERISA). This commentary explores approaches to designing the NQDC plan investment menu as well as some of the considerations around informally funding the liabilities.
In this article, Neuberger Berman notes, “At the end of the day, participants nearing retirement need strategies that seek both to mitigate risk and to provide growth potential. We believe replacing a portion of a near-dated target date fund’s equity exposure with a collateralized put write strategy—an option strategy in which the portfolio manager systematically sells fully collateralized short-dated put options on a variety of indexes in an effort to generate equity-like returns with lower volatility over time—can help in this pursuit.”
Retail investment management prices have dropped by more than 50 percent over the past 35 years, which is widely seen as a boon to investors because they maintain more of their wealth over time. But the benefits of lower prices may be undermined by other, non-fee costs created from features that are oversimplified or imprecise in investment products and wealth management services. To assess this potential, United Income analyzed 62 different retirement solutions in the market and over 26,000 potential combinations of future market returns (from highly bearish to bullish)
Sustainable Funds U.S. Landscape Report
Morningstar provides a survey of the U.S. sustainable funds landscape, noting in the conclusion, “As demand from plan participants grows, more viable options become available, including target-date funds, and plan administrators and gatekeepers become more comfortable with sustainable investing, more DC plans are likely to add sustainable funds to their lineups.”
In this report, Ascensus notes, “What types of specialized accounts are Americans using to save for the future? When are they starting to save? And how much progress have they made toward their savings goals? Our recordkeeping data across 401(k), 529, ABLE, and health savings accounts offer some preliminary answers to these questions.”
Capital Group writes that, “The beauty of a TDF is its simplicity for participants.” However, its underlying complexity can challenge committees tasked with assessing a TDF’s glide path design, risk/return profile and fee structure as part of fiduciary due diligence. One of the considerations is whether the TDF should be actively or passively managed. In either case, appropriate due diligence must be conducted.
In this post and related white paper, PGIM notes, “Adopting an institutional mindset is imperative to driving successful outcome for participants, but how exactly is an Institutional Investment approach defined?”
FTSE Russell analysis finds a large investment opportunity in the transition to a sustainable and “green” economy.
This article from Pavilion Advisory Group discusses some of the risks and investment options, including annuities, associated with encouraging retirees to develop a withdrawal plan.
Wellington Management notes: “Our research strongly suggests that downside mitigation is important to long-term investment outperformance in both rising and falling markets. These findings, along with the pronounced loss aversion of many plan participants, create a compelling case for core-menu options that emphasize buffering the downside.”
In this report, the Manulife Asset Management real estate team identifies the main characteristics of commercial real estate as an asset class and the role it can play in a wider portfolio as an inflation hedge and/or a diversification tool. The team also explains how the ‘income’ component can act as a cushion from a returns perspective in the event of an economic slowdown.
Wellington Management explains several reasons why active management has a meaningful role to play in investors’ portfolios, framed by seven concerns that investors must address as they consider how passive and active strategies can help them achieve their investment objectives.
A measure of caution may be in order for many market participants. This is especially the case for baby boomers in the retirement readiness zone—those recently retired or expecting to retire within the next few years. Target-date funds have become one of the most popular ways for working Americans of all ages to save for retirement, but most of these target-date assets sit in funds that hold relatively heavy allocations to stocks, even as the investor’s retirement draws closer.
Callan asserts that target date funds (TDFs) are a dramatic improvement over former common defaults, such as stable value funds. But they need to evolve. The solutions include using uncorrelated asset classes, in-plan annuities, "dynamic" qualified default investment alternatives, or guaranteed income products. Author Jimmy Veneruso, CFA, CAIA
DC plan sponsors could face hidden risks within their current fixed income lineups that are worth a careful second look. Plan demographics, as well as changes in participant behavior, risk preferences, and engagement, also need to be considered. To better understand how plan sponsors are addressing these and other issues, T. Rowe Price recently conducted an online survey of 54 DC plan sponsors, most of them (81%) managing DC plans with over $1 billion in assets.
Vanguard authors explore the reasons behind the increase of defined contribution plan assets invested in index options and the implications for plan sponsors.
GuidedChoice notes: “Whether you’re a plan advisor or plan sponsor, you have the same goal: improving participants’ financial wellness. An essential facet of reaching this goal is helping them plan for retirement. In the past, this usually meant utilizing a target date fund (TDF). However, there are many reasons this popular choice is worth reconsidering, especially in light of the many benefits provided for managed accounts.”