Defined Contribution (DC) Industry Overview

Transcription

1 Defined Contribution (DC) Industry Overview April 26, 2012 Jamie McAllister DC Consultant, VP Callan Eileen Finnegan Senior Relationship Manager TIAA-CREF Lou Gadoury Senior Managing Director Fidelity

2 Agenda Introduction DC Trends by Callan TIAA-CREF Overview Fidelity Overview Questions & Answers 1

3 Introduction Moderator: Jamie McAllister (Callan) Panelists: Eileen Finnegan (TIAA-CREF) and Lou Gadoury (Fidelity) Topics: DC Trends, Financial Education, DC Investment Option Trends, and Plan Administration Jamie McAllister, Vice President, is a defined contribution consultant in Callan's Fund Sponsor Consulting Group. Jamie joined Callan in 2011 and is responsible for providing support to Callan s DC clients and consultants, including DC provider searches, structure reviews, fee analyses, and maintaining the recordkeeping database. Jamie has over 10 years of defined contribution experience. Prior to joining Callan Associates, Jamie was an investment consultant to defined contribution, defined benefit, and endowment clients at Hewitt EnnisKnupp. Jamie also served as an analyst in Aon Hewitt s Human Resources Outsourcing Group where she primarily worked with the administration of defined contribution plans. Jamie graduated from the University of Notre Dame where she earned a B.B.A in Finance with a concentration in international business. 2

4 Retirement Plan Type Availability Over Time All Plans Public Administration Plans 90% 70% 80% 70% 60% 50% 60% 50% 40% 40% 30% 30% 20% 10% 20% 10% 0% % DB only DC only Both DB & DC Any DC DB only DC only Both DB & DC Any DC P&I reported that defined contribution plan recordkeeping assets reached $4 trillion in Source: EBRI Notes. November 2009; Pensions & Investments 3

5 DB vs. DC Plan Performance Return % 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% Investment Performance 4th Qtr 2011 and Annualized Since Inception (1/1/06) 0.00% Avg Corp Defined Total DC Index Benefit Inception 2.42% 4.43% 4th Qtr % 5.18% Source: Callan DC Index (DB returns are gross of fees) 4

6 Typical DC Plan Asset Allocation as of 12/31/2011 Real Return/TIPS 0.5% Specialty/Sector Equity 0.0% Alternatives 0.2% Real Estate 0.3% Money Market 3.4% Int'l/Global Fixed 0.1% Stable Value 14.1% Target Date Funds 12.4% Brokerage Window 1.4% Company Stock 5.6% High Yield Fixed 0.1% Global Equity 1.2% Emerging Markets Equity 0.3% Int l Equity 6.4% Domestic/Global Balanced 10.2% Domestic Large Cap 23.0% Domestic Fixed 9.7% Domestic Small/Mid Cap 11.1% Source: Callan DC Index 5

7 Overall DC Trends and Recent Regulations According to Callan s Survey, key DC areas of focus for plan sponsors are: 1. Fees 2. Investment structure 3. Fund/manager due diligence The target date fund landscape saw little change. Many plan sponsors are concerned about upcoming DOL fee disclosure requirements. More plans are providing a retirement income projection for participants. Key 2011/2012 DC Regulations: Investment Advice Regulation Finalized Fee Disclosure Regulations Finalized Source: 2012 Callan DC Trends Survey 6

8 Fee Disclosure Regulation Timeline Final Rule Timeline June 1, 2011 Proposal to extend and align compliance dates of participant-level and fiduciary fee disclosure rules July 1, 2012 Effective date for fiduciarylevel fee disclosure November 14, 2012 (for calendar year plans) Quarterly participant-level fee disclosures must be provided to participants 45 days after the end of the quarter in which initial disclosures are furnished October 20, 2010 Final rule on participant-level fee disclosure published by EBSA February 2, 2012 Final rule on fiduciary fee disclosure published. August 30, 2012 (for calendar year plans) Initial participant-level disclosures must be provided to participants 7

9 Fee Disclosure to Plan Sponsors Source: 2012 Callan DC Trends Survey 8

10 Fee Disclosure to Participants Source: 2012 Callan DC Trends Survey 9

11 Number of Funds in DC Plans (Excluding Target Date Funds) Mar Jun Sep Dec Mar-07 Number of Funds 01-Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec-11 The average number of funds, excluding target date funds, in a DC plan is 13.4 funds according the Callan 4Q DC Index. The Self-Managed Plan has 29 fund options available for investment, excluding 2 target date fund series. It is important to note that the 29 funds are spread across both recordkeepers. Source: Callan DC Index 10

12 Investment Fund Lineup Trends Passive investments are gaining ground in DC plans: The most common investment lineup structure consists of a selective mix of active and passive funds at 84.8%, up from 71.2% last year. Target date funds are the norm as the qualified default investment alternative (QDIA) with 92.5% of plans default being a QDIA. Mutual funds continue to be the most prevalent investment vehicle (95%), but many plan sponsors are also using collective trusts (43.8%) and separate accounts (40%). 58.5% of plan sponsors conducted an investment structure evaluation within the last year, driven largely by the need to identify overlaps and gaps as well as the desire to add more diversification opportunities. Real return and TIPS funds are one of the fastest growing segments in DC Plans. Nearly 30% of plans now have a TIPS or real return fund. 22.2% of plan sponsors added a real return/tips fund in 2011; however, utilization by participants is modest. A recent study, the Report on Sustainable and Responsible Investing in US DC Plans, indicates that 14% of plans offer a SRI option, while an additional 13% of survey respondents are either discussing adding a SRI option or intend to do so in the next two to three years. 31.5% of plan sponsors reported that managers/funds were replaced in the past year due to performance-related reasons. Source: 2012 Callan DC Trends Survey; 2012 Report on Sustainable and Responsible Investing in US Defined Contribution Plans 11

13 Active vs. Passive Investing in DC Plans 31-Mar Dec-11 % in Active Strategies over Time % Asset Class 120.0% 100.0% 80.0% 60.0% 40.0% 68.5% 74.8% 72.3% 69.9% 63.9% 91.8% 79.1% 98.4% 91.3% 100.0% 93.5% 100.0% 70.2% 34.7% 87.6% 80.9% 20.0% 0.0% Target Date Funds Domestic Fixed Domestic Large Cap Domestic Small/Mid Cap International Equity Int'l/Global Fixed Real Estate 0.0% Real Return/TIPS Total DC Assets Source: Callan DC Index 12

14 Participant Education Prevalence 79% of plans now offer some type of investment advisory service as compared to 32% of plans in Online advice remains more prevalent than managed accounts. On-site seminars remain popular at 37%. Source: 2012 Callan DC Trends Survey A Multiple responses were allowed. 13

15 Conclusions DC Plans are becoming more common in the public sector. Plan sponsors are seeking to help participants invest better through improvements to the investment fund line-up as well as by providing communication and education efforts to participants. The Self-Managed Plan providers, Fidelity and TIAA-CREF, will provide additional detail on how they are helping participants plan for retirement. 14

16 Definitions 404(a)(5) Fee Disclosure: requires plan sponsors to provide both plan-related (e.g., general information, administrative expenses) and investment-related information (e.g., performance data, benchmarks, fees) to participants. 408(b)(2) Fee Disclosure: requires service providers to provide fee disclosures to plan sponsors, aimed at helping plan fiduciaries understand the reasonableness of plan fees and assess any potential conflicts of interest. Collective Trust: an investment vehicle that is operated by a trust company or a bank that pools together investments, with a stated set of objectives, by institutional investors. Information on collective trusts is not publicly available. Department of Labor (DOL): the federal agency responsible for administering and enforcing ERISA. The DOL is primarily responsible for reporting and disclosure, and fiduciary responsibility. Employee Retirement Income Security Act of 1974 (ERISA): the federal law that established legal guidelines for pension plan administration and investment practices. Glide Path: the component of the target date fund that determines how the equity and fixed income asset mix changes as the target date is approached. The glide path can be to or through. For the through glide path, the percent allocated to equities continues to roll down past the assumed retirement age. For the to glide path, the equity exposure percentage remains static past the assumed retirement date. Mutual Fund: an investment vehicle, operated by an investment company, that allows multiple investors to invest in a mix of securities such as stocks, bonds, etc. that have a stated set of objectives. Information is publicly available and investors can look up information with the fund s ticker symbol. Qualified Default Investment Alternative (QDIA): an investment fund or model portfolio that is designed to provide both long-term appreciation and capital preservation through a mix of equity and fixed income exposures. Separate Account: an investment vehicle that holds a portfolio of marketable securities such as stocks and bonds with a stated set of objectives, which is managed exclusively for a single institutional investor or plan. Information is not publicly available. Target Date Funds: a fund that includes a mix of stocks and bonds and automatically reduces its risk as the investor reaches the target date, typically the investor s anticipated retirement date. 15