In a recent survey by Callan Associates, passively managed fund
options are attracting more interest among defined contribution plan sponsors
as investment fees are being scrutinized.
The survey of 107 plan executives show that 24.1 percent expect
to increase the proportion of passive funds in their lineup compared to 12.5 percent
who increased the passive-fund proportion last year.
According to the survey, even though 12.5 percent increased
their proportion of passive funds last year, 4.2 percent increased the
proportion of actively managed funds, and 83.3 percent did not change the mix
of funds.
The move to add passively managed funds comes as plan
sponsors become more aware of fee-related lawsuits. There is a comfort level
with the lower-cost fee structure of passively managed funds. Additionally,
there has also been a jump in the percentage of plans offering an “active/passive
mirror,” where major asset classes include both active and passive fund
options. In 2013, 21 percent of plans offered this strategy.
The report shows plan executives “are growing more sophisticated when
it comes to their plan fees, which continue to be subject to downward pressure.”
And, among plans that conducted a fee review, 44.9 percent reduced fees last
year, and 42.9 percent reduced fees in 2012 (the year federal fee-disclosure
rules took effect).
Another notable finding in the survey shows that 16 percent
of plan sponsors plan to eliminate company stock from their retirement plans
due to increased fiduciary liability concerns. Twelve percent said they would
place a cap on contributions to company stock in 2014, also a big increase from
previous years.
Other key findings of the Callan survey include:
- 51.9 percent of plans offered collective trusts
in 2013, up from 48.3 percent in 2012 and 43.8 percent in 2011.
- 50.6 percent offered separate accounts in 2013,
up from 42.5 percent in 2012 and 40.0 percent in 2011.
- 85.2 percent of plans offered mutual funds in
2013, down from 92.0 percent in 2012 and 95.0 percent in 2011.
The Callan survey was conducted online in September and October.
Eighty percent of respondents represented 401(k) plans. Among the plans, 58.3%
had assets of $1 billion or more and 20.4% had 50,000 or more participants.
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