Pensions & Investments: DC Plans Wrestle with Cost, Complexity and Other Concerns when Considering In-Plan Retirement Income Solutions
NEPC’s Bill Ryan was quoted in a recent Pensions & Investments article to discuss in-plan retirement solutions and how the data from our 2023 DC Plan Trends & Fee survey supports his solution. Excerpts from the article are shown below. View the article on Pensions & Investments’ site here.
Despite benefiting from regulatory and commercial advances designed to make in-plan retirement solutions more attractive, defined contribution executives continue to wrestle with concerns about cost and complexity as well as compatibility among employers and record keepers.
. . .
To consultant William Ryan, the solution to an in-plan solution is hiding in plain sight: a target date series with a systematic distribution of assets upon retirement.
Ryan is a partner and head of defined contribution plan solutions at NEPC, which recently released an annual survey on DC plan trends and fees showing that people over 65 hold 45% of their assets in target-date funds. Among that age group, 68% have retired or left their employers.
“Unfortunately, only 26% have activated systematic distributions, but 26% is wildly greater than the 4% to 5% who annuitize,” Ryan said.
. . .
The words “retirement income” or “lifetime income” are subject to different interpretations, Ryan added. To NEPC, the words retirement income simply mean “getting money out of the plan to fund a paycheck,” he said. “It doesn’t need to mean guaranteed and it probably shouldn’t mean guarantee, insured, or annuity.”
However, “lifetime income” has become a synonym for “guaranteed income” — words that are “creatively interchanged by insurance companies,” he said.
“This is why we at NEPC think the industry has communicated the success and objective of retirement income very wrong,” Ryan added. “The narrative has become hyperfocused on needing to add commercial insurance to DC plans, when most participants are entitled to government retirement insurance via Social Security, and some get employer retirement insurance via a pension plan.”
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Pensions & Investments: DOL Names New ERISA Advisory Council Members, Chair
NEPC’s Bill Ryan was mentioned by Pensions & Investments for his appointment by the Department of Labor to the ERISA Advisory Council. Excerpts from the article are shown below. View the article on Pensions & Investments’ site here.
“The Department of Labor appointed five members to its ERISA Advisory Council…”
. . .
The council’s new appointees, who will each serve three-year terms, are:
- William E. Ryan III, head of defined contribution for investment consultant, NEPC
- Anusha Rasalingam, a partner at law firm Friedman & Anspach
- Charles B. Wolf, a retired shareholder of law firm Vedder Price who teaches employee benefits law at the University of Chicago Law School
- Regina T. Jefferson, a law professor at the Catholic University of America, Columbus School of Law
- Kathleen McBride, an accredited investment fiduciary analyst, and founder and president of FiduciaryPath
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PlanSponsor: Rise in TDF Popularity Causes Core Menus to Shrink
NEPC’s 2023 DC Plan Trends & Fee survey results were featured in a recent PlanSponsor article which discusses how because target–date funds represent a large and growing share of plan assets, plan sponsors are narrowing their core investment menus. View the article on PlanSponsor’s site here.
“The rising popularity of target-date funds in defined contribution plans has led to a reduction in the number of core menu investment options, according to a new NEPC survey.
After surveying 240 DC plans, of which the average plan had $1.5 billion in assets, NEPC’s 2023 DC Plan Trends and Fee Survey revealed that 97% of plans offer TDFs and that, on average, 47% of plan assets are invested in TDFs.
As a result, the core menu is shrinking. For example, in 2010, when an average of 28% of assets were invested in TDFs, that meant 72% of assets were invested in offerings in the core menu. However, by 2023, assets in TDFs had steadily increased to reach that 47% figure, meaning only 53% of assets are now invested in the core menu, NEPC found. “
. . .
“Bill Ryan, a partner in NEPC and head of its DC team, says the industry has been telling the story that older participants are taking the most advantage of the core menu for a decade, but it may not necessarily be true anymore. As automatic enrollment has become more prevalent, Ryan says, more participants—across all ages—have invested more via target-date funds, which tend to be the default investment.
According to NEPC, close to 30% of plans have fewer than 10 core investment options, and Emma O’Brien, a principal in NEPC, predicts this trend toward streamlining will continue.
‘If you look across the different buckets where we’re breaking out the number of core options that are offered, equities compressed at a much faster rate relative to the other options that are offered, and I think that’s driven by the fact that, historically, there have been multiple flavors of active equity options within lineups,’ O’Brien says.”
. . .
“Target-date funds with systematic distribution allow us to provide a paycheck in retirement, which I call the Batman dilemma,” Ryan says. “[It’s] maybe not the hero that you want, but it’s the hero that you need right now.”
Read the full article on Plan Sponsor’s website here.
NEPC Survey Shows “Retirement Crisis” Is Real, But Resolvable
BOSTON–MARCH 5, 2024–(BUSINESS WIRE)–NEPC, LLC, one of the country’s largest research-driven investment consultants and OCIO providers, today published the 18th 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 2023 survey include 128 clients representing $259 billion in aggregate assets and 2.6 million plan participants.
This year’s data shows that the tools needed to solve the “retirement crisis” already exist, with 86% of respondents currently offering their participants a retirement income solution — most often in the form of a Target Date Fund (TDF) paired with systematic distribution. The survey also highlights:
- An older contingency of plan participants than previously imagined, with 53% of participants over the age of 65 contributing to a TDF.
- Close to 30% of plans have less than 10 core options, and that group is growing since TDFs represent 47% of plan assets.
“Our job as retirement consultants is to maximize the solutions that work for the most people and operate around the margins,” says Emma O’Brien, a principal on NEPC’s DC team. “The data shows that, contrary to the media’s perception, we don’t need to reinvent the wheel because Target Date Funds work.”
The high demand for TDFs pushes plan sponsors to be purposeful with their offerings, leading to a decline in core options. The survey suggests that clients want to unshackle themselves from having 15-20 options as the role of a core lineup is becoming less important, freeing up the opportunity to lower fees.
“TDFs are built to support retirement income drawdown,” O’Brien says. “We’re making progress instead of adding to the noise.”
This year’s survey also revealed that fees for managed accounts have dropped more than 10% over the past year, due to an increase in lower cost providers, who are challenging established managed account providers on fees. Managed Accounts can add value for participants and aid in solving the retirement crisis when handled correctly.
“Fees have come down because we are actively pushing for lower costs,” says Bill Ryan, partner and head of NEPC’s DC team. “As a team, we have spent a lot of time educating clients on the role of managed accounts, what personalization means, and what level of personalization is right for them. All of those discussions have pointed to fees, negotiated or not, being too high.”
NEPC’s Defined Contribution (DC) Practice team will discuss the survey’s findings during a webinar on March 5, 2024. Those interested in hearing how DC consultants are advising plans to address emerging opportunities can register for the webinar here.
The 18th Annual Defined Contribution (DC) Plan Trends and Fee Survey results can be downloaded here.
About NEPC, LLC
NEPC is an independent investment consultant, private wealth advisor, and OCIO provider serving over 400 retainer clients and $1.6 trillion in total assets. 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 families. To learn more about NEPC, visit nepc.com.
Media Contact:
Emma Rayder
[email protected]
CNBC: A Growing Number of Colleges are Rolling Out ‘No-Loan’ Policies.
NEPC’s Colin Hatton sat down with Jessica Dickler at CNBC to discuss the current pressures institutions of higher education are facing, including the impact of declining tuition revenue. View the full article on CNBC’s site here.
Barring a $1 billion donation or broad-based student loan forgiveness, college is becoming a path for only those with the means to pay for it, many reports now show.
But some colleges have a new strategy to entice students wary of the high cost.
Roughly two dozen schools have introduced “no-loan” policies, which means they are eliminating student loans altogether from their financial aid packages.
. . .
“Nationwide, colleges continue to feel the consequences of fewer students and declining tuition revenue, according to Colin Hatton, senior consultant of NEPC’s endowments and foundations team. For the most part, college endowments have paid the price.
“The higher educational system is under stress,” Hatton said.”
Read the full article on CNBC’s website here.
Pensions & Investments: Larissa Davy to Lead NEPC's Newly Opened London Office
The opening of NEPC’s new London office was featured by Pensions & Investments. Excerpts from the article are shown below. View the article on Pensions & Investments’ site here.
“Larissa Davy, a senior investment director on NEPC’s research team focused on infrastructure, has relocated from Boston to lead the firm’s newly opened London office.
CIO Tim McCusker said the Feb. 27 opening of the Boston-based consulting and investment firm’s London office, its first overseas, will bolster its coverage of global investment managers and strategies— with a focus on private markets — for NEPC’s predominantly U.S. client base.”
. . .
“Having a London office will also help NEPC better compete with investment consultants that have global footprints, he said.
While prospective clients reviewing NEPC’s research on non-U.S. managers and ideas about the global investment landscape typically come away thinking highly of the firm’s work, “we weren’t answering yes” to RFP questions about whether NEPC has overseas offices, McCusker noted. “We feel like we’re a very global organization and wanted to align that,” he said.”
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FIN News: NEPC Expands Outside U.S. With London Office
The opening of NEPC’s new London office was featured by FIN News. Excerpts from the article are shown below. View the article in it’s entirety on FIN News’ site here.
“Investment consulting firm NEPC today announced the official opening of its London office.
The new office underscores NEPC’s “commitment to providing global strategies and solutions to portfolios” and regional efforts will be led by Larissa Davy, senior investment director of real assets. She will be joined in the new office by Senior Investment Director Andrew Petterson, a firm spokesperson said.”
. . .
“London marks the first international office for NEPC, which is headquartered in Boston and maintains offices in Atlanta, Charlotte, N.C., Chicago, Las Vegas, Portland, Ore. and San Francisco.”
NEPC Expands Global Footprint with London, UK Office Opening in February
BOSTON–February 27, 2024—NEPC, LLC, one of the industry’s largest independent, investment research-driven consulting firms, today announced the official opening of its London office, underscoring the firm’s commitment to providing global strategies and solutions to portfolios. Larissa Davy, Senior Investment Director of Real Assets, will lead NEPC’s regional efforts.
“NEPC’s expansion into London reflects our unwavering commitment to delivering innovative solutions and exceptional service to our clients,” said Larissa Davy, Senior Investment Director of Real Assets. “By establishing a physical presence in Europe, we aim to deepen our understanding of global markets and provide tailored strategies that align with our clients’ long-term objectives.”
In alignment with NEPC’s mission to foster global connectivity and empower its teams, Tim McCusker, Chief Investment Officer, emphasizes the importance of this expansion. “Our presence in London enables us to engage directly with investment managers and gain valuable insights into diverse investment perspectives,” McCusker stated. “This initiative highlights NEPC’s dedication to excellence and reinforces our position as a trusted partner in the investment community.”
2023 was a year of strong growth for NEPC and its client portfolios. Looking ahead into 2024 and beyond, NEPC’s mission remains focused on fostering deep connections with the global investment manager and allocator communities, ultimately positioning teams across the firm to be better investors with access to better solutions for clients.
About NEPC, LLC
NEPC is an independent investment consultant, private wealth advisor, and OCIO provider serving over 400 retainer clients and $1.6 trillion in total assets. 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 families. To learn more about NEPC, visit nepc.com.
Media Contact:
Laura Nascimento
[email protected]
Pensions & Investments: Alternatives ETFs Still Waiting for Their Big Moment with Institutions
NEPC’s Dulari Pancholi was quoted in a recent Pensions & Investments article which discusses that despite heavy allocations to other forms of alts, institutional investors and private wealth clients are not yet looking to bring alternative ETFs into their portfolios. View the article on Pensions & Investments’ site here.
Over the last few years, the allocation that large institutional investors have been willing to commit to alternatives has appeared limitless. And the larger the investor, the more likely they were to utilize alts.
With few exceptions, however, alternatives offerings in the $8.3 trillion U.S. exchange-traded product market have failed to attract significant institutional interest. Yet some recent market and product trends have helped to shine a light on the opportunities and advantages of ETFs beyond equity and fixed-income exposures.
. . .
“Similarly, Dulari Pancholi, partner and head of credit and multiasset research at NEPC, said she has observed investment managers watching ETFs and tracking flows “to get a sense of market movement and sentiment as a measurement to better inform when they might put on or take off a trade.” Institutional investors and private wealth clients, however, are not yet looking to bring alternative ETFs into their portfolios, according to Pancholi.”
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Pensions & Investments: Infrastructure Portfolios Soar While Real Estate Stumbles
NEPC’s Matthew Ritter was quoted in a recent Pensions & Investments article to discuss the rise in infrastructure allocations and the expansion of targets based on investor appetite. View the article on Pensions & Investments’ site here.
Real estate equity assets among the top 200 U.S. retirement plans with defined benefit assets stayed relatively flat for the year ended Sept. 30 as write-downs affected performance, while infrastructure continues to grow by leaps and bounds, according to the latest Pensions & Investments survey.
The differences reflect not only performance but the maturity of the real estate asset class, into which U.S. retirement plans have invested for decades, while infrastructure has been one of the fastest growing asset classes from virtually nothing less than 20 years ago.
. . .
“Matthew Ritter, partner and head of real assets investments at investment consultant NEPC, said in an interview that the rise in infrastructure assets is due primarily to so many pension funds creating new targets to the asset class over the past five years and building to those targets.
“Many are still underallocated,” said Ritter, so he expects those assets to continue to rise dramatically. Perhaps the most notable trend among this groundswell of investments is how the markets has evolved and expanded.
“It depends on each investor’s objectives,” said Ritter. “You can achieve return, income stream, partial inflation hedge, and overall a good diversifier for the portfolio.”
“If you look back historically, the traditional definition of infrastructure, you think of infrastructure as long-duration assets with stable cash flows, frequently in a kind of monopolistic environment.”
While that would apply to the traditional areas of investment, such as roads and electric transmission lines, Ritter said he’s seen a big growth in the areas of digital infrastructure, energy transition and renewable energy.
“We’ve increasingly seen managers view infrastructure more as private equity in nature in terms of their risk/return profile,” said Ritter. “That dynamic has expanded the appeal of infrastructure.”
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