NEW YORK -- Among defined contribution plan sponsors, the balance is beginning to tip toward an increased use of institutional mutual funds over retail mutual funds, a new survey shows.
While nearly 90% of the 391 plan sponsors surveyed offer mutual funds, users are split nearly in half between those that offer institutional mutual funds (45%) and those that offer retail funds (43%). The use of separate accounts and commingled funds is on the rise, too, among plans with more than 5,000 participants and $200 million in assets; 20% of large plans surveyed offered separate accounts and 23% used commingled funds.
The survey, commissioned by Morgan Stanley Asset Management, New York, and conducted by the Spectrem Group Inc., San Francisco, also found more than 70% of plan sponsors surveyed offer their participants mutual funds from more than one fund family, up from 40% two years ago. An additional 8% of respondents said they would prefer to offer multiple funds from multiple families, but don't now.
Thirty-four percent added new funds during the past 12 months and 24% plan to add more funds. The type of fund added or to be added are shown in the accompanying table.
Only 9% of defined contribution plans now use in-house management for more than one investment option in their plans and those are mainly large plans with more than 5,000 participants.
The use of lifestyle funds is rising meteorically. At the time of the survey earlier this year, 35% of respondents offered various types of strategic asset allocation funds, up from 15% two years ago. Another 15% of those surveyed would like to add such funds to their investment stable.
Nearly three-quarters of sponsors surveyed said they have instituted a formal process for monitoring the performance of the investment options used in their plans: 45% of all plans use an outside entity; 28% prepare in-house reports. The remaining 27% use an informal process to monitor performance results.
The survey found decision-making responsibility over the shape of the defined contribution plan and its investment options is a function of a company's culture, rather than its size. This decision-making power was evenly split across plans surveyed between the treasury division (25%) and human resources (24%). The responsibility is shared in 34% of those sponsors surveyed between treasury and HR. Sixteen percent of respondents said some other entity in their company is empowered to make decisions about the defined contribution plan.