Defined contribution plan executives are as concerned about litigation as they are about failing to meet their participants' retirement goals, investment consultants revealed in a survey by Pacific Investment Management Co. LLC, Newport Beach, Calif.
The consultants were asked to rank their clients' most important decision-making factors. Some 64% said managing litigation risk and meeting participants' retirement goals were the first- or second-most important.
“This is troubling that sponsors are so concerned about litigation risk,” Stacy Schaus, PIMCO's executive vice president and defined contribution practice leader, said in an interview. While she had hoped the results would have been different, she said, “I'm not terribly surprised.”
“Certainly, there appears to be more discussion at conferences and in the press about 401(k) litigation and the sizable settlements for certain cases,” Ms. Schaus added. “This reality has likely raised the level of concern and, according to the consultants, is a leading factor in plan sponsor decision-making.”
The other choices asked in that survey question were managing organizational costs (39% ranked it first or second in importance); keeping pace with competitors (19%); and meeting workforce management objectives (12%).
The survey is PIMCO's ninth annual examination of the defined contribution landscape through the eyes of investment consultants. Results of the new survey are to be released on March 23; it contains responses from 58 consultants representing more than 8,500 DC plans with $3.2 trillion in retirement plan assets.
Among the survey's other findings:
- A majority of consultants said active management is “very important” or “important” in eight of 10 asset classes. The exceptions were Treasury inflation-protected securities and U.S. large-cap equity.
- Given the Securities and Exchange Commission's recent changes in money market regulations, consultants most often recommend stable value to clients contemplating a switch in capital preservation investment options. Government money market funds were second.
- In-plan retirement income options based on insurance products are, at best, modestly promoted by consultants to their defined contribution plan clients. Plus, consultants don't expect significant growth in plans' use of these options over the next three years.