NEPC was recently quoted in Pensions & Investments discussing the challenges and opportunities of integrating alternative investments into defined contribution plans. View the full article on Pensions & Investments’ site here or read excerpts below.
Empower’s decision to offer alternatives investments to defined contribution participants faces challenges in an industry that, researchers and consultants say, avoids such investments due to concerns about cost, transparency, liquidity and participant interest.
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Although each managed account provider is different, NEPC reported in February that DC industry trends are squeezing such services.
“We find U.S. DC plans are becoming increasingly passive (and) this shift is driving more plan assets into publicly traded global stocks and bonds,” the report said.
“This growing constraint affects both managed accounts and target-date fund providers alike,” NEPC said. “Over time, as these investment solutions become more commodity like and less differentiated, competition is likely to focus increasingly on price.”
Last year, NEPC “began to see a shift in plan sponsor sentiment, with plans actively terminating managed accounts services due to stalled fee negotiations,” the report said. “This change is occurring at a much faster rate than providers had anticipated.”
Managed accounts remain a small portion of DC plans, according to a March review by NEPC of fees. Although 46% of plans offered managed accounts, only 9% of participants used them, accounting for 8% of total plan assets.
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The NEPC survey was based on interviews with 14 record keepers, covering 278 plans from 137 clients with aggregate assets of $408 billion and 3.2 million participants.
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