Defined contribution industry executives are looking for ways to reduce or revise the role of revenue sharing, a new survey by Pensions & Investments and Rocaton Investment Advisors LLC shows.
Sixty-four percent of respondents said they expect revenue-sharing use among DC plans to decline significantly or slightly in the next two years. Only 10% expect revenue-sharing use to increase.
“The industry sees the writing on the wall,” Christopher Lyon, a partner at Norwalk, Conn.-based Rocaton, said in an interview. “Plan sponsors will move away from revenue sharing or make changes.”
The changes, he added, could include equalizing fees charged to participants in different investment options subject to revenue sharing, or rebating or crediting some revenue-sharing fees back to participants. Under revenue sharing, all or most of a record keeper's fees are offset by investment management fees.
Revenue sharing was one of the many topics covered in the survey, conducted online in January. The analysis is based on responses from 450 employees of record keepers, money managers and investment consulting firms. Among the respondents, 48% worked for money management firms that don't do record keeping, 27% worked for consulting firms and 25% worked for record keepers.
Other findings include:
nNearly two-thirds of respondents agree the initial default rate contribution for a newly hired employee should be 6% of pay or higher (the most common rate used today is 3%).
nSome 45% said automatic features, such as auto enrollment and auto escalation, are their top choice among strategies to best improve participant retirement outcomes; 25% picked auto features as second or third.
nIndustry professionals support re-enrollment, with 28% saying its makes sense for all DC plans and 57% saying it makes sense for some plans.
nMost believe less liquid alternative investments will become more popular as components of target-date funds in the next two years; only 21% disagreed.