19 September 2019

White-label Funds on Rise for DC Plans

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Defined contribution plan executives increasingly are replacing brand-name mutual funds with no-name options, trying to simplify investment lineups, increase portfolio diversity and reduce fees. With names like white label, plain label or private label, these investment options often are used by larger DC plans to create multimanager funds for all or some of the investment lineup.

In many cases, sponsors leverage their defined benefit plan managers in the process. Plus, they create options with generic names that better describe the investment strategies than the names of brand-name mutual funds.

Scott Brooks, managing director for defined contribution at SEI Investments Co., is leading a study among members of the Defined Contribution Institutional Investment Association on plans implementing a white-label strategy. The biggest challenges, he said, are the need for increased oversight, the operational complexity of multimanager options and the need to communicate with participants.

Used by 24% 

A recent study of 73 large DC plans showed that 24% employed white label options, with just less than half of this group offering an all-white-label lineup. Among those choosing white label options, 71% said they combined multiple managers under one option; 64% said the white label approach gave them flexibility to change managers; 57% said this strategy helped participants better understand their choices; and 43% said they acted to lower fees.

In an effort to simplify its $630 million 401(k) plan, Hanesbrands Inc., Winston-Salem, N.C., switched its whole investment lineup to a white label approach. For example, the plan had three large-cap equity funds before switching to white labeling in June.  The lineup now contains four multimanager options and three single-manager options, as well as the company stock fund and a target-date fund series.

Executives at DC plans with $500 million or more in assets are talking to Callan Associates Inc. about “at least getting one white-label fund” into their investment lineups, said Lori Lucas, the firm's Chicago-based executive vice president and defined contribution practice leader.

Moving to a core menu of white-label funds was part of an investment menu overhaul of the $2.3 billion 401(k) plan at Farmers Insurance Inc. The old structure had 11 core options, most of which were mutual funds that were really expensive. White-label options are “significantly cheaper.”

Now, white-label core investments feature a pair of passively managed options and a trio of actively managed options. The stock index option and the bond index option have single-managers. The actively managed stock option has five managers, the actively managed bond option has three managers, and the actively managed stable value fund has one manager.

Easier to understand 

For the $7.1 billion Massachusetts Deferred Compensation Plan, Boston, the switch to an exclusively “plain label” lineup in June 2012 was based on making choices easier to understand for participants, said David Lynch, executive director of deferred compensation. Single-manager, brand-name funds are now “plain-label” funds.

The plan has 14 single-manager funds as well as two multimanager options that have been available for more than 10 years. Given the plan's asset size, Mr. Lynch is trying to spread investment risk and manager risk by switching a couple of single-manager funds to multimanager options under the “plain label” banner.

Click here to access the full article on Pensions & Investments.

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