Amid the ongoing turmoil in financial markets, investment consultants say that defined contribution retirement plans, such as 401(k)s, are most concerned with capital preservation, diversification and inflation protection, according to the "2009 Defined Contribution Consulting Support and Trends Survey" released today by PIMCO, a leading investment management firm and provider of retirement solutions.
PIMCO's survey reports that consultants are helping DC plans offer investment options that focus on minimizing the risk of losses, with 61% expecting plans to consider adding a Treasury or government-only money market fund. Similarly, 61% of consultants said they are helping evaluate DC plans' existing stable value offerings, such as evaluating the underlying manager performance and monitoring the market-to-book ratio.
"Given the extreme market volatility and significant decline in DC account balances over the past year, it's not surprising that DC plan sponsors are focused on reducing the risk that participants face in their DC plans," said Stacy Schaus, Senior Vice President and PIMCO's Defined Contribution Practice Leader. "Consultants are helping clients evaluate their DC plan investment structures, often to dial down risk and improve the likelihood that the plans will meet participants' retirement income goals."
Consultants are also working with clients to assess volatility and inflation risk in their plans. They report that plan sponsors are adding asset classes that increase diversification and help hedge against a rising inflationary environment. All of the consulting firms surveyed agreed that inflation protection is somewhat important to critical in DC plans, and they ranked Treasury Inflation-Protected Securities (TIPS), commodities and real estate investment trusts (REITs) as the top three asset classes for doing so.
At the same time, 35% of consultants note that plan sponsors are reconsidering or revising the asset allocation, or "glide path," in their target date strategies, typically changing the glide paths to be more conservative and better diversified. Consultants believe that target date strategies will continue to be the preferred investment default for DC plans, and two-thirds of consultants are actively promoting custom target date strategies. Over three quarters (76%) of consultants offer custom target date asset allocation services for clients, and they support custom strategies for plans of all sizes, from $1.3 million to multi-billions.
Other findings from the survey included:
-- 94% of consultants believe that target date strategies will continue
to be the most prevalent form of investment default in DC plans.
-- 78% believe that DC plan sponsors will consider adding "guaranteed
income" products over the next two years.
-- 59% of consulting firms have a dedicated DC team, with a median of
five consultants, four analysts and one support person, an increase of one
person from 2008.
About PIMCO's DC Practice and Annual Survey
PIMCO's Defined Contribution Practice is dedicated to promoting effective DC plan design and innovative retirement solutions. Our team is pleased to support clients and the broader community by sharing ideas and developments in DC plans in the hopes of fostering a more secure financial future for employees of corporations, not-for-profits, governments, and other organizations.
PIMCO's "2009 Defined Contribution Consulting Support and Trends Survey" captures data, trends and opinions from 32 consulting firms across the U.S. that collectively serve more than 1,400 clients with aggregate DC assets of nearly $1.6 trillion. For our survey highlights, please contact our DC Practice at (888) 845-5012 or email us at firstname.lastname@example.org.
PIMCO, founded in 1971, is a global investment management firm serving a full range of institutional and retail investors worldwide. Our reputation as one of the world's top managers rests on our combination of a long-term investment approach, high level of client servicing and cutting edge technology. With offices in nine countries in North America, Europe, Asia and Australia, we manage investments across a full spectrum of global financial markets. Our success is built on our goal of consistently providing attractive returns while maintaining a strong culture of risk management and long-term discipline. PIMCO is owned by Allianz Global Investors, a subsidiary of the Munich-based Allianz Group, a leading global insurance company.