Target-date funds are by far the most common default offering in defined contribution plans, but customized TDFs are replacing standard offerings at a substantial rate and are expected to continue doing so.
Those are some of the findings of the Callan Investments Institute survey, "2015 Defined Contribution Trends," which reported that recordkeepers' proprietary TDF offerings in DC plans fell from 47.5 percent in 2013 to 28.7 percent in 2014.
In addition, plan sponsors expect the trend to continue in 2015, to the point where proprietary TDFs represent a mere 23.6 percent.
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The number of plans offering customized TDFs, meanwhile, is rising quickly.
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In 2013, only 11.5 percent of plans offered custom TDFs, but in 2014 that number rose to 22.3 percent. About the same number of plans continued to offer indexed TDFs from 2013 to 2014, at approximately 42 percent, and TDFs remain the top default investment choice for participant-directed funds, at 74.6 percent. That's up slightly from 2013, when they were the top choice of 72.4 percent of plans.
According to the survey, two-thirds of plans using custom TDFs report assets in excess of $1 billion. Two-thirds of respondents also said that the plan sponsor was the fiduciary with respect to the custom TDF.
Sponsors have a variety of reasons for switching over to custom TDFs. The reason most often cited was the desire to have best-in-class underlying funds (85 percent). Other reasons — respondents sometimes provided several different motivations — were the ability to control the glide-path (65 percent); a better cost structure (55 percent); to use managers in the DB plan (35 percent); branding (25 percent); DOL/EBSA guidance (10 percent); and other (10 percent).
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