Retirement income and managed accounts are key 401(k) advisor trends: T. Rowe Price

While not all 401(k) plan sponsors are prioritizing retirement income, they are significantly more likely to have a view on retirement income compared to prior years, according to T. Rowe Price’s 4^th annual Defined Contribution Consultant Study.

The annual study suggests more DC plan sponsors are taking a stance on retirement income. In 2021, consultants and advisors described greater than half (59%) of their DC plan sponsor clients as not having a stated opinion on retirement income. In 2024, this same figure declined to 19%.

Consistent with prior years, the study identifies key findings related to target date solutions, retirement income, investment trends and financial wellness. Participating in the study were 35 top consultant and advisor firms, including Buck, Commonwealth, Aon, Goldman Sachs and Mercer.

“Consultants and advisors are looking for solutions that offer choice, personalization, flexibility and are cost-effective…,” said Jessica Sclafani, Global Retirement Strategist at T. Rowe Price. “Perspectives have shifted on retirement income in just three years reflecting plan sponsors’ increased engagement on the topic. Our research shows there is no consensus solution when it comes to retirement income; however, consultants and advisors rank a systematic withdrawal capability, managed accounts with income planning feature, and target date investments with a managed payout feature as most appealing for the delivery of retirement income.”

Consistent with the 2023 key findings, views from the consultant and advisor community on fixed income and capital preservation investment options continue to rapidly evolve as interest rates move off historic lows post-global financial crisis.

Another key finding of the survey highlighted that personalization is perceived as particularly beneficial as participants approach retirement, and there is strong support for managed accounts as an opt-in option offered on the investment menu. However, it seems unlikely that managed accounts will surpass target date solutions as the most common qualified default investment alternative (QDIA).

Consultants and advisors overwhelmingly support the transition from target date solutions provided through mutual funds to collective investment trusts (CITs), which are tax-exempt, pooled investment vehicles maintained by a bank or trust company exclusively for 401(k)s. This is primarily due to CIT’s typically cost-effective fee structures, according to the survey.

Survey results also highlighted growing support for target date solutions that employ a blended mix of active and passive investment strategies, which has the advantage of offering a potentially lower cost investment and reduced tracking error, while still maintaining the advantages of active management.

Related: Retirement pros must prioritize automatic income in retirement: Nationwide

Within financial wellness, building emergency savings appears to be gaining in importance, with 70% of respondent firms predicting that in-plan emergency savings programs will become more commonly available in the next three to five years. Also, debt management and, in particular, student loan debt management, are top concerns.

“Every year, this study provides us with fresh insights about the evolving preferences and priorities of DC consultants, advisors, and their clients, as well as the opportunities they face in a retirement marketplace that’s more dynamic than ever… to help DC plan sponsors evaluate retirement income offerings and quantify which solutions may best fit the needs and preferences of their plan participants,” said Michael Davis, Head of Global Retirement Strategy at T. Rowe Price.