According to Cerulli Associates, 2017 is likely to be the year for development — of qualified default investment alternative structures and improved flexibility in retirement income.
Those findings are in "The Cerulli Edge—U.S. Retirement Edition," which reports that the defined contribution industry will be working to up its game this year to satisfy the requirements of the Department of Labor's fiduciary rule—even though the fate of the rule is still up in the air.
Plan sponsors and service providers, it says, are looking at QDIAs, approaches to retirement income and the role of third-party administrators with an eye toward the future.
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With criticism of target-date funds over a one-size-fits-all structure growing louder, other options look to be taking their place, according to Bing Waldert, managing director at Cerulli.
In the report, Waldert writes, "Simpler managed accounts and other innovative products, which transition participants into managed accounts, seek to provide superior retirement solutions without added fees."
Waldert adds that asset managers should keep an eye on QDIA product development within the DC market, writing, "These products represent an opportunity for asset managers with capabilities in the multi-asset-class space.
Multi-asset-class solutions are one of the key ways in which asset managers are redistributing their intellectual capital to compete against the continuing rise of passive products."
But that's not the only area that should see substantial change as the year progresses. There's also the issue of retirees needing a steady source of income in retirement, and how to provide that from a DC plan.
Less than half of mega plan sponsors, the report finds, provide retirement income options, with target-date funds and managed accounts the most predominant among them.
But the question is whether such plans will adapt and become retirement income platforms—particularly since the sponsors of such plans "believe that participants should leave their assets in plan at retirement and take income from the 401(k)," according to Waldert.
Since 401(k) plans do not provide sufficient flexibility to be used as income platforms by retired investors, the report suggests that consultants should work with plan sponsors on modifications to plan documents that will allow increased flexibility to satisfy that need.
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