InvestmentNews: Income Solutions Remain Sticking Point for Retirement Plan Sponsors, Survey Shows
NEPC’s Alison Lonstein was quoted in a recent InvestmentNews article to discuss our 2022 DC Plan Trends and Fee survey results which show a lack of industry consensus on how to create meaningful retirement income solutions in companies’ defined-contribution plans. View the announcement on InvestmentNews’ site here.
The booming retirement income market seems to be befuddling defined-contribution plan sponsors.
According the recently released NEPC Defined Contribution Plan Trends and Fee Survey, there’s almost no industry consensus on how to create meaningful retirement income solutions in employer plans even as the market for those solutions has skyrocketed. In fact, the report revealed that choosing a retirement income solution has proven to be a major pain point for many defined-contribution clients.
The investment consultant and OCIO provider’s data showed that 84% of plan sponsors who responded to the survey currently offer their participants a retirement income solution, generally in the form of a target-date fund that includes the flexibility to take installment withdrawals in retirement. Currently, an overwhelming 96% of respondents offer TDFs, which is unchanged from 2020, with 46% of total plan assets invested in TDFs, up from 42% in 2020, according to the study.
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“As participants continue to demand retirement income solutions, plan sponsors are seeking trusted stewards to help them simplify what’s become a pretty complex evaluation and selection process,” Alison Lonstein, principal and senior consultant on NEPC’s defined contribution team, said in a statement.
Lonstein added that this trend mirrors the action in other segments of the retirement space, especially in the ESG and legal environments, where she’s seen a “significant uptick in clients asking for fiduciary training on the ESG landscape and requests for more insight and intel around legal news.”
Read the full article on InvestmentNews’ website here.
NAPA: Retirement Income Selection Remains a 'Pain Point' for Many DC Plans
NEPC’s Bill Ryan and Alison Lonstein were quoted in a recent article from the National Association of Plan Advisors to discuss our 2022 DC Plan Trends and Fee survey results. View the announcement on NAPA’s site here.
While the dedicated retirement income solution market has proliferated over the past several years, many plan sponsors have struggled to evaluate their options strategically, according to NEPC’s 17th annual Defined Contribution (DC) Plan Trends and Fee Survey.
This year’s data reveals that retirement income solutions are more prevalent than what is typically discussed, with 84% of respondents currently offering their participants one — most often in the form of a target date fund (TDF) that includes the flexibility to take installment withdrawals as a source of income in retirement.
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“As participants continue to demand retirement income solutions, plan sponsors are seeking trusted stewards to help them simplify what’s become a pretty complex evaluation and selection process,” notes Alison Lonstein, Principal and Senior Consultant on NEPC’s Defined Contribution team.
“This trend mirrors what we’ve seen in other segments of the retirement space — especially the increasingly complex ESG and legal environments. We’ve seen a significant uptick in clients asking for fiduciary training on the ESG landscape and requests for more insight and intel around legal news,” she adds.
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“Off-the-shelf and custom TDFs can have wide-ranging risk allocations, expenses, and best practices for management and reporting — something recent regulation and court cases are looking to address,” observes Bill Ryan, Partner and Head of Defined Contribution Solutions. “As we’re likely to see continued focus on America’s retirement crisis in the years ahead, plan sponsors should be having hard conversations today about their fiduciary decision making and monitoring process for TDFs on their menu,” he adds.
Read the full article on NAPA’s website here.
PlanSponsor: Employees Should Offer Variety of Retirement Income Options, Survey Shows
NEPC’s Bill Ryan and Alison Lonstein were quoted in a recent PlanSponsor article to discuss the 2022 DC Plan Trends and Fee survey results and how the data argues that plan sponsors should offer retirement income solutions such as annuities to provide lasting lifetime income options to workers. View the announcement on PlanSponsor’s site here.
Employers offering robust retirement income options for workers is but one piece of the puzzle to help workers manage the retirement assets they have accumulated over an entire working career.
Plan sponsors need to think longer about the different lifetime income withdrawal options for defined contribution plan sponsors, new NEPC data shows.
While 84% of plan sponsor respondents currently offer retirement income solutions—most often in a target-date fund—several challenges remain for employers, including the absence of a consensus on how to develop guaranteed retirement income solutions, the NEPC 2022 DC Plan Trends and Fees Survey found.
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“Nine out of 10 of our [plan sponsor] clients [offer] a target-date fund with systematic distributions, so 90% of our clients have a retirement income solution, [but] there’s a discrepancy between when people think about retirement income and lifetime income,” he says. “We think five years from now, you may see target-date funds plus an annuity window as probably the more common way to address this problem.”
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Because there are fewer private-sector pensions available for workers to retire on, many lack a secure stream of income in retirement and need to develop—through a guaranteed insurance product, such as an annuity, or via non-guaranteed income like 401(k) IRAs and stocks—a secure stream of income for retirement. Plan sponsors need to heed this, to support their employees’ retirement readiness, says Alison Lonstein, a principal and senior consultant at NEPC.
For plan sponsors to explore offering a lifetime income option with a guaranteed feature, a critical decision must be answered: the purpose of the workplace retirement plan.
“It could come down to one simple question: Do you believe your DC plan should be a savings or retirement plan?” she says. “There’s a lot of different paths [plan sponsors] could consider in thinking about how to build out the spending phase of their lineup.”
Read the full article on Plan Sponsor’s website here.
NEPC Survey Shows Defined Contribution Plans Challenged by Booming Retirement Income Market, TDF Scrutiny
BOSTON–MARCH 7, 2023–(BUSINESS WIRE) — NEPC, LLC, one of the country’s largest research-driven investment consultants and OCIO providers, today published the 17th annual edition of its Defined Contribution (DC) Plan Trends and Fee Survey, which examines current plan investment trends, features, and innovations across major sectors, and how these plans have evolved over the years. Respondents to the 2022 survey included 119 clients representing $283 billion in aggregate assets and 2.2 million plan participants.
This year’s data showcases that retirement income solutions are more prevalent than what is typically discussed, with 84% of respondents currently offering their participants a retirement income solution – most often in the form of a Target Date Fund (TDF) that includes the flexibility to take installment withdrawals as a source of income in retirement. However, the survey also points to two major challenges for plan sponsors:
- There is still no consistency or real industry consensus on how to create meaningful retirement income solutions in pooled employer plans.
- A concurrent poll of NEPC consultants shows that retirement income solution selection is a pain point for many defined contribution clients. As the dedicated retirement income solution market has boomed over the past several years, many plan sponsors have struggled to evaluate their options strategically.
“As participants continue to demand retirement income solutions, plan sponsors are seeking trusted stewards to help them simplify what’s become a pretty complex evaluation and selection process,” said Alison Lonstein, Principal and Senior Consultant on NEPC’s Defined Contribution (DC) team. “This trend mirrors what we’ve seen in other segments of the retirement space – especially the increasingly complex ESG and legal environments. We’ve seen a significant uptick in clients asking for fiduciary training on the ESG landscape and requests for more insight and intel around legal news.”
NEPC’s 2022 survey also shows the continued dominance of TDFs in investment menus. Currently, 96% of respondents offer TDFs (unchanged from 2020) with 46% of total plan assets invested in TDFs (compared to 42% in 2020). While TDFs remain a popular option, plan sponsors are increasingly seeking guidance from investment consultants to help them better navigate rising scrutiny around these funds.
“Off-the-shelf and custom TDFs can have wide-ranging risk allocations, expenses, and best practices for management and reporting – something recent regulation and court cases are looking to address,” added Bill Ryan, Partner and Head of Defined Contribution (DC) Solutions. “As we’re likely to see continued focus on America’s retirement crisis in the years ahead, plan sponsors should be having hard conversations today about their fiduciary decision making and monitoring process for TDFs on their menu.”
Other key trends highlighted in NEPC’s new survey:
- Increased adoption of passive tier options: 2022’s data shows 83% of plans currently offer a passive tier (three or more index funds), an increase from just 66% in 2020.
- The growth of the DC plan OCIO market: As plan sponsors’ workforces and governance structures change, they are increasingly looking for OCIO solutions to streamline their plans. Throughout 2021, NEPC saw a 94% increase in OCIO assets (largely driven by a 17% increase in OCIO clients). Overall, 10% of NEPC’s DC clients are using the firm’s OCIO solution.
NEPC’s Defined Contribution (DC) Practice team will discuss the survey’s findings during a webinar on Thursday, March 8, 2023. Those interested in hearing how DC consultants are advising plans to address emerging opportunities can register for the webinar here.
The 17th Annual Defined Contribution (DC) Plan Trends and Fee Survey results can be downloaded here.
About NEPC, LLC
NEPC, LLC, is one of the country’s leading investment consultants and OCIO providers, servicing over 400 retainer clients with $1.4 trillion in assets1 with $301.2 billion in alternative assets2. Combining a proprietary research team dedicated to the long-term challenges facing investors with our unique client-centric model, NEPC builds forward-looking investment portfolios for institutional investors and ultra-high-net worth individuals. To learn more about NEPC, visit nepc.com.
1 As of 10/1/2022
2 As of 12/31/2021, NEPC provides some form of advice to all clients counted but does not advise all clients on all asset classes.
Media Contact:
Laura Nascimento
CNBC: More Colleges to Close Even as Top Schools Experience Application Boom
NEPC’s Kristin Reynolds was quoted in a recent CNBC article to discuss why some smaller colleges and universities might be closing their doors even amid a surge in applications. View the article on CNBC’s site here.
Citing inflationary pressures and sinking enrollment, more colleges are set to close in 2023.
Already, Presentation College in Aberdeen, South Dakota; Cazenovia College in Cazenovia, New York; Holy Names University in Oakland, California; and Living Arts College in Raleigh, North Carolina, announced they will shut down after the current academic year.
The consequences of fewer students and less tuition revenue since the start of the pandemic have been severe, according to Kristin Reynolds, a partner and leader of NEPC’s Endowments and Foundations practice.
“Larger institutions can weather the storm,” she said.
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Pensions & Investments: Sponsors Mull New Methods to Fight Inflation
NEPC’s Bill Ryan was quoted in a recent Pensions & Investments article to discuss what he believes should be the primary defense against unexpected inflation for retirees. View the article on Pensions & Investments’ site here.
The Wall Street Journal: Pension Investment in Private Credit Hit Eight-Year High
NEPC’s Oliver Fadly was quoted in a recent Wall Street Journal article to provide insight on how the industry and investors are thinking about the asset class. View the article on The Wall Street Journal’s site here.
North American pension-fund investment in private-market loans reached an eight-year high in 2022, even as banks pulled back on lending and default rates inched upward.
The average share of these retirement funds parked in the illiquid, typically unrated debt has crept up steadily to 3.8%, the highest on record, according to analytics company Preqin. Though a fraction of the overall portfolio, private credit now amounts to more than $100billion in the retirement savings of U.S. and Canadian teachers, police and other public workers, according to a Wall Street Journal estimate based on Federal Reserve data and pension financial reports. And the pensions are planning to add more: Their average target allocation is 5.9%.
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Investment consultant NEPC said in a presentation to the Ohio workers fund last year that many private-credit NEPC managers have had trouble liquidating funds by the promised maturity date.
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But the small scope of private credit in the late 2000s means it is hard to draw conclusions about how the asset class would perform in another crash.
“It’s a little bit more of a nascent asset class and so we try to stress caution there,” said Oliver Fadly, head of private debt at NEPC. “It’s not fully tested.”
Click here to continue reading the full Wall Street Journal article.
Pensions & Investments: SECURE 2.0 Fails to Provide All of the Help Sought by 403(b) Plans
NEPC’s Bill Ryan was quoted in a recent Pensions & Investments article expressing his disappointment that CITs failed to cross the finish line for 403(b) plans. View the article on Pensions & Investments’ site here.
Pensions & Investments: Opportunities Still Exist for CIT-Like Group Trusts in 403(b) Plans
NEPC’s Bill Ryan was quoted in a recent Pensions & Investments article to discuss 403(b) plan investment options after Congress’ failure to let executives offer collective investment trusts. View the article on Pensions & Investments’ site here.
FIN News: Greater Alts. Allocations Help Mega Endowments Rise Above Smaller Peers: Report
NEPC’s “Mega Endowment FY 2022 Returns” report was featured in a recent FIN News article to discuss our findings. View the article on FIN News’ site here.
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There was a case to be made for maintaining allocations to public equities and fixed-income securities coming out of COVID-19, which challenged the merits of diversification, according to Senior Consultant Colin Hatton.
“Higher education endowments have been reducing exposure to diversifying alternatives over the past several years. However, in 2022, we saw that the larger endowments that maintained large allocations to real assets, private equity and hedge funds were rewarded due to macroeconomic factors, mainly high-interest rates and inflation,” Hatton said, in e-mailed commentary.
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“As we look ahead, we expect that real assets and active hedge fund strategies will continue to play an important role in client portfolios, but the near-term differential between public and private market performance should narrow as we head into 2023 and beyond,” Hatton said.