Cerulli identified two trends taking shape in large defined contribution plans that it believes will trickle down to smaller plans, according to the first-quarter edition of The Cerulli Edge.
Large defined contribution plans tend to be “incubators” for new retirement products, according to Cerulli, pointing to automatic features and adoption of target date funds as examples. Plans with more than $100 million account for almost 70% of 401(k) assets, even though they represent less than 1% of all 401(k) plans, according to the report.
Evolution of QDIA Options
Cerulli found that large plans are becoming more receptive to using managed accounts as qualified default investment alternatives instead of target date funds.
What Your Peers Are Reading
Although Cerulli believes target date funds “should be viewed as a success” in retirement plans, they have their detractors.
“Critics deride target date funds for their one-size-fits-all structure,” Bing Waldert, managing director for Cerulli, said in a statement.
Critics also worried about funds offered by recordkeepers that only included their own underlying investments in the funds, especially in the early days of TDFs, the report noted.
Waldert said managed accounts “seek to provide superior retirement solutions without added fees.”
A 2015 study by Cogent Reports found that the number of mega plans, those with $500 million or more in assets, offering managed accounts as their QDIA increased from 5% in 2014 to 18%. Deloitte’s 2015 defined contribution survey found 34% of all DC plans offered managed accounts, with 38% of those saying between 1% and 5% of participants use the managed account service. Less than a quarter of respondents in that survey said the participation rate in managed accounts was under 1%.