Some large defined contribution plans — including the $1.6 billion 401(k) plan of Akzo Nobel Inc., Chicago; the $8.5 billion New York City Deferred Compensation Plan; and the $10 billion 401(k) plan sponsored by Pfizer Inc., New York — are dropping target-date funds offered by their bundled provider in favor of customized funds from investment-only shops.
Consultants say the move gives plan executives the flexibility to offer any target-date fund family; the ability to customize the managers used — often by blending portfolios of existing managers in the plan sponsor's defined benefit and/or defined contribution plan — and better pricing.
Jaime Erickson, manager of defined contribution plans at Akzo Nobel, said plan executives liked what BGI had to offer — and they liked the cost savings when compared with Fidelity. “When we did our fee study we looked at all the options available and went with want we felt was best,” she said. Ms. Erickson would not disclose how much is in the target-date funds.
Georgette Gestely, director of the pre-tax benefits programs for the New York City Deferred Compensation Plan, said customized target-date funds give management flexibility and more control over price.
“We have a very conservative board that likes to keep fees low, and by having the flexibility of active and passive investments, we can do that easily. We also like the ability to pick and choose our managers,” she said.
According to an executive at BGI who declined to be named, Pfizer added BGI's target-date funds last year and began defaulting new participants into the options. Tina Stamato, manager, declined to comment. Fidelity also is Pfizer's bundled provider.
BGI's average customized target-date fund fee is 25 basis points, according to the source.