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  2. DEFINED CONTRIBUTION
July 22, 2016 01:00 AM

DC plans moving away from record keepers' target-date funds

Robert Steyer
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    Defined contribution plans are showing a greater willingness to move away from record keepers’ target-date funds, said a survey by SEI Investments.

    The survey of 231 DC plan executives found that 46% now offer custom target-date funds or off-the-shelf target date funds that are not provided by their record keepers. That is up from 40% in a similar survey two years ago.

    The shift to more custom target-date funds is due to sponsors looking for investment strategies attuned to specific company demographics, said Joel Lieb, director-defined contribution for SEI, in an interview.

    The shift to other target-date funds away from record-keepers’ products is due primarily to sponsors seeking a different glidepath or lower fees, he added. SEI provides both custom and non-custom target date funds.

    Plans with more than $1 billion in assets were most likely to seek a target-date fund away from their record keeper, while those with less than $100 million were least likely, said a report on the survey issued Thursday. For the former, 64% choose a non-record keeper target-date fund; for the latter, it was 32%.

    However, only 39% of plans with assets between $300 million and $1 billion sought target-date funds not offered by their record keepers, the report said. Forty-nine percent of executives in plans with assets of $100 million to $300 million went outside their record keepers’ offerings, the report said.

    Mr. Lieb said his firm didn’t know why plans in the $300 million to $1 billion asset range responded like they did.

    The SEI report also noted 51% of DC executives said their plans offered managed accounts, compared to 90% offering target-date funds. “When comparing the two options, 74% of those polled said they feel custom target-date funds provide better diversification for less cost compared to managed accounts,” the report said.

    The SEI survey, based on a written questionnaire, was conducted in November and December covering plans whose asset size ranged from $25 million to more than $5 billion. Of the 231 respondents, 47 were SEI clients.

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