More than one-third of defined contribution plan executives plan to implement or revise custom target-date fund lineups in the next year, according to a survey from SEI.
Of the 231 DC plan executives surveyed in February whose plans offer target-date funds, only 12% offer custom target-date funds.
However, of the plans that do not offer custom funds, 37% are likely or somewhat likely to implement such changes in the next 18 months, the survey found.
In February 2013, the U.S. Department of Labor's Employee Benefits Security Administration released guidance recommending plan executives consider “custom or non-proprietary” target-date funds because “a custom target-date fund lineup may offer “advantages to your plan participants by giving you the ability to incorporate the plan's existing core funds in the TDF.”
Since then, DC plan executives seem to be more motivated to take action, said Scott Brooks, managing director at SEI's defined contribution institutional group, in a telephone interview.
“It's a function of the economic times improving,” said Mr. Brooks, “so people have a little more latitude to take action, and then you throw in the confluence of additional regulatory and legal action and you throw all these items in the pot and (these are) serving as a catalyst” to plans considering custom target-date funds.
According to the survey, 63% of plan executives said the most valuable component in deciding to implement custom target-date funds is “the ability to mix active and passive funds.” Only 36% of respondents cited that as a valuable component in proprietary or pre-packaged target-date funds.
Fifty-eight percent of respondents replied that custom target-date funds would reduce total investment expense, while 50% cite “open architecture/multimanager implementation” and 42% cite “use of broader asset classes including alternatives” as valuable components in deciding to implement custom target-date funds.
SEI surveyed a total of 285 defined contribution plan executives.