Trends in Target-Date Funds A 2014 Survey of Defined Contribution Plan Sponsors Sponsored by Janus and PLANSPONSOR Magazine
Survey Overview & Methodology PLANSPONSOR Magazine conducts an annual survey of defined contribution (DC) plan sponsors to capture and evaluate industry trends Janus participated in the 2014 survey our eighth consecutive year by sponsoring a series of questions that provided insight into plan sponsors target-date and Qualified Default Investment Alternative (QDIA) fund selection, construction, monitoring and satisfaction PLANSPONSOR e-mailed ~35,000 questionnaires in July 2014 Over 5,200 usable responses were received by September 2014 Strong representation from large and mega plan segments Participation by Plan Size 2
Summary of Key Findings There was a dramatic increase in the number of investment policy statements that cover target-date funds (TDFs) and their underlying funds More plan sponsors believe they have a fiduciary duty to evaluate the underlying funds in their TDFs Plan sponsors are still unsure or don t think their single-manager TDF is best-in-class Plan sponsors are not at all concerned about potential litigation regarding QDIA and TDF selection Large plans are following the Department of Labor s (DOL) suggestion of considering implementing custom TDFs This is for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security. Janus Capital Group Inc. does not guarantee that the information supplied is accurate, complete, or timely, or make any warranties with regards to the results obtained from its use. It is not our intention to indicate or imply in any manner that current or past results are indicative of future profitability or expectations. Janus Capital Management LLC serves as investment adviser. Janus Distributors LLC C-0515-80924 07-30-16 666-44-25136 05-15 3
Target-Date Fund Usage Rising Q: Which of the following investment options do you currently offer in your plan? Target-date offerings hold steady year-overyear, with nearly 3 of every 4 plans offering TDFs An increase was seen in plans with target-risk funds this year 4
QDIA Preferences Shifting Q: Which of the following is the best QDIA option for your employee population? TDFs continue build momentum as the most popular QDIA option for plan sponsors, with a 3% increase Balanced funds lost ground while managed accounts held steady as the best QDIA choice Fewer plans were unsure which QDIA is the best option 5
QDIA Selection Considerations Q: What is the most important consideration for your plan when selecting a QDIA? Best overall performance and quality of funds/ underlying funds were the most important considerations when selecting a QDIA Fiduciary risk as a consideration for QDIAs declined greatly (down from 18% in 2013) Fund quality was the biggest mover up almost 5% from the previous year 6
How QDIA Options Stack Up Q: What type of QDIA option do you think would be the best choice for: TDFs were chosen as the best selection for fiduciary risk, low fees (up 3%) and correct usage by participants Balanced funds continue to be viewed as the best QDIA option for investment transparency, and managed accounts for overall performance 7
Record Keeper Offerings Q: What type of target-date funds does your DC record keeper/provider offer? Multi-manager funds increased from 13% in 2013 A large portion of offerings from DC record keepers/ providers are singlemanager options 8
Considering Customized Q: Have you considered building a customized target-date series for your plan utilizing your plan s current fund line-up? No large changes year-over-year in plans considering or having customized TDFs in place The majority of large and mega plans (63%) still haven t implemented or aren t considering a custom option 9
Building Customized Target-Dates Q: Who would primarily assist you in building a customized target-date series for your plan? Record keepers increased significantly (up 5%) while Institutional/Investment Consultant decreased by 9% from 2013 Third-party fiduciary, a new option in 2014, had a modest showing of 5% 10
IPS Coverage of Target-Dates Q: If you have an investment policy statement, does it specifically cover target-date funds and their underlying funds? A dramatic increase was seen in plan sponsors including TDFs in their IPS Fewer plans were unsure if their IPS covered TDFs (dramatic decrease of 12% from 2013) 11
Glide Path End Date Q: When does your TDF reach its lowest equity exposure? Those unsure of when their TDFs hit their lowest equity allocation dropped by 13% Another significant decrease was seen in the 1-10 year category (down almost 4%) 12
Duration Monitoring Q: Within your target-date fund series, are you monitoring the duration of the fixed income component, and if so, are you taking action to address and adjust duration? More plan sponsors report monitoring the duration but not taking action Those unsure decreased significantly (down 10% from 2013) 13
Best-in-Class Q: If your plan line-up includes single manager target-date funds, do you believe the manager is best-in-class for all asset classes and underlying funds it s managing? 63% of plan sponsors don t think or are unsure if their manager is best-in-class A larger concern is the fact that almost 50% of those plans continue to be not sure 14
Evaluation of Underlying Funds Q: Do you believe plan sponsors have a fiduciary responsibility to evaluate the underlying investments in target-date funds? More plan sponsors are taking responsibility for evaluating the underlying investments of their TDFs The largest increase was seen in the Micro market (up 6% from 2013) 15
Areas of Litigation Concern Q: How concerned are you about potential litigation with respect to the following: Plan sponsors continue to be not at all concerned with potential litigation regarding QDIA selection The percentage of don t know responses dropped across all categories 16
Sponsor Confidence Levels Q: How confident are you that: 87% of plan sponsors are at least somewhat confident that their QDIA selection is the best option for the majority of employees A significant number of plan sponsors are not confident or don t know if employees understand the structure and intent of TDFs and are selecting the correct fund 17
2014 Plan Changes Q: What actions have you taken in the current calendar year, or do you plan to take in the current calendar year? 18
Concluding Points The majority of plan sponsors now believe that TDFs are the best QDIA for employees Overall performance and quality of underlying funds are the most important considerations in selection Plan sponsors are becoming less concerned about fiduciary risk management and litigation Fiduciary risk was once the most important consideration in QDIA selection, but is now a top factor for only 9% of plans More plans are including TDFs in their IPS and review the underlying funds on a regular basis Only 37% of plan sponsors believe their single-manager TDF is best-in-class Although the majority of single-manager TDFs may be falling short, only about 26% of plan sponsors have implemented or are considering a custom TDF option 19
About the Firm Since 1969, Janus Capital Group has stayed true to our mission: deliver better client outcomes through actively managed investment solutions. Today, we offer a broad rand of fixed income, equity and multiasset strategies managed by Janus, INTECH and Perkins, in addition to a suite of exchange-traded products. Through deep expertise in security selection, portfolio construction, and asset allocation, we help individual and institutional investors meet their goals, including growth of capital, volatility management, uncorrelated returns and income. As of 3/31/15: Investment products utilized on the top 25 DC platforms in the U.S. Availability on over 200 recordkeeping systems Retirement alliances with: Bank and trust providers Trading platforms Mutual fund companies Third-party administrator firms Insurance and B/D platforms 20