Northern Trust: Gap exists between consultants, DC plan execs

A gap remains between what defined contribution plan executives are doing or planning vs. what consultants are recommending, according to a new survey by Northern Trust published Tuesday.

The gaps exist in a range of issues from the number of investment options to the assessment of fiduciary liability to the strategies to help DC participants achieve strong investment results, according to the Northern Trust survey of investment consultants and DC plan executives.

The gap reflects what Northern Trust views as the slow transition by DC plans to emphasizing an outcomes-based goal from an asset-accumulation goal, Jim Danaher, managing director of Northern Trust's DC Solutions Group, said in an interview.

“Consultants are probably a bit ahead of the curve” compared to plan executives in guiding DC plans' strategies to an outcomes-based approach, thus giving the DC plans a more defined-benefit-plan approach, Mr. Danaher said.

One example of the gap between plan executives and consultants is deciding on an optimal number of investment options. Forty-six percent of plan executives said their plans have 16 to 25 options in their plans (target-date series are considered a single option), but no consultant recommends that many.

Forty percent of executives said their plans have 11 to 15 options, while 89% of consultants recommend this range, according to the Northern Trust survey.

“There's always a challenge for sponsors,” said Mr. Danaher, referring to how many investment choices to offer. If plans reduce options, “is it going to be perceived as a takeaway” by participants, he said.

Plan executives and consultants also had diverging views about fiduciary liability related to making investment changes. Although 66% of consultants were concerned or very concerned about fiduciary risks, only 25% of plan executives shared these concerns.

And when plan executives and consultants were asked about the best strategies to help participants improve investment results, wide gaps were found among many choices. For example, all consultants recommended cutting the number of investment options, but only 13% of plan executives agreed. Eighty-nine percent of consultants recommended adding index funds but only one-third of executives agreed.

“It is fairly apparent that, to date, the adoption of certain strategies has lagged the pace at which consultants have recommended the actions,” said the Northern Trust survey. “Over time, as DC plans continue to become the primary retirement vehicle for many workers, we expect this gap will shrink.”

The Northern Trust survey is based on telephone interviews in May and June with nine investment consulting firms and 48 plan executives, most of whom work for 401(k) plans. The plans represented more than 1.5 million participants and nearly $200 billion in assets.

For more, see the Northern Trust report