PLANSPONSOR - January - February 2024 - 19

and DEI [diversity, equity and inclusion] initiatives, " Lowell says.
For 2024, Ashmore anticipates that sponsors will focus on
determining their employees' financial resilience and exploring
the plan design options that will suit those individuals' needs.
Goals will likely involve considering how the sponsors and
employees share the cost and risk of financing retirement and
introducing flexibility for employees to save for both short-term
and long-term financial commitments.
Cybersecurity
WHERE WE ARE: Jay Gepfert, partner in Culpepper RFP, and
managing partner in DOL Cybersecurity LLC, both in Southport,
Connecticut, says sponsors have been pondering whether and
how to respond to the DOL's cybersecurity guidelines for almost
three years, since the passing and publishing of the guidelines in
2021. Retirement and benefit plans that have been most proactive
in completing the assessments have been Taft-Hartley plans,
Gepfert says. Further, " external legal counsel for the Taft-Hartley
plans have made the cyber assessment a priority for their clients. "
WHAT'S AHEAD: That many sponsors have more responding to do
is unsurprising as most human resource and finance teams have
been left with a " heavy lift, " with other priorities to complete for
their companies, Gepfert explains. He says the COVID-19 effect
regarding remote workers and the tight employment market have
pushed DOL cyber guidance down plan sponsors' priority lists.
Consequently, he says he thinks sponsors will need to be
pushed into taking a more proactive approach, and will be by
plan participants' litigation over cyber breaches or by plan audits
completed by the Employee Benefits Security Administration
that identify gaps in its suggested assessments. " EBSA audits
already include questions regarding service provider cyber practices, "
he says. " Once that moves through the market and word
spreads on the uncomfortable nature of the questions, more
sponsors will become more proactive. "
Investment Structures
WHERE WE ARE: The market for collective investment trusts
continued to expand last year. Chris Brown, principal in Sway
Research in Newton, New Hampshire, cites several developments
fueling the investment vehicles' adoptions. In late 2022,
Madison Dearborn Partners acquired Wilmington Trust's CIT
business with $115 billion of assets under management across
550 products. " The backing of this private equity giant is likely
to fuel further growth of this business, which is now Great Gray
Trust, " Brown says.
Another key development in 2023 was SECURE 2.0's enactment.
The legislation cracked the door for 403(b) plans, which
hold approximately $1.1 trillion, to offer CITs, assuming additional
changes to securities laws, which could come this year.
" Over the past several
years, we've seen the
scope of 401(k) plan
offerings expand beyond
an exclusive focus on
retirement savings. "
Also, despite some wins for providers,
lawsuits against plan
sponsors and recordkeepers over excessive fees continued to be
filed throughout the year. " This will drive even more interest
among plan sponsors in using CITs over higher-cost mutual
funds, " Brown observes.
In contrast, exchange-traded funds have yet to make much
headway with plans. The Plan Sponsor Council of America's 66th
Annual Survey of Profit Sharing and 401(k) Plans found that, for
the 21 fund types it tracked, ETF use exceeded 2% in only three
categories, with roughly half of the categories at 1% or less.
Greg Ungerman, senior vice president and defined contribution
practice leader with Callan in San Francisco, says his firm's
findings are similar, with ETF holdings at about 2% in surveyed
plans. " We do not see ETFs as a viable core option in the lineup
since most recordkeepers don't support them other than within
a brokerage window, " Ungerman says. " ETFs are securities that
trade during market hours, which generally will not work for a
recordkeeping platform that uses end-of-day net asset value pricing
for mutual funds, CITs and custom accounts that are unitized. "
WHAT'S AHEAD: For 2024, Sway Research projected, as of press
time, that CITs will have surpassed mutual funds as a percentage
of total target-based fund assets in January. Sway calculated the
split between CIT- and mutual fund-based target-date funds at
48% to 52% at the end of 2022. " But, given the faster growth in
CIT products-AUM in CIT target-date series grew 16% annually
between 2018 and 2022 vs. 6% for mutual fund target-date
[fund]s-we believe they surpassed mutual fund target-date
[fund]s in 2023, " Brown says.
Brown also predicts increased usage of CITs in smaller plans.
A recent Sway survey of defined contribution investment only
sales leaders at 19 asset management firms found that all agreed
demand for CITs is rising in $50 million to $100 million plans.
Further, 16 of the 19 firms agreed that demand is increasing even
in plans with less than $50 million of assets, and none perceived
it as decreasing, only remaining flat in some cases. Sway projects
CITs will overtake mutual funds as the dominant holder of
defined contribution investment only assets in 2025, though that
development could come even sooner if the changes needed to
allow CITs in 403(b) plans are made in the first half of this year.
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