PLANSPONSOR - January - February 2024 - 20

COVER STORY
Provider Landscape
WHERE WE ARE: Tim Hoying, managing director with Accenture
Strategy, North America in Wilmette, Illinois, says 2023 saw
pressure on fees-and continued interest from recordkeepers
in creating more cost-effective operating models to compensate
for that pressure. Accenture says overall market fee compression
should continue with the largest on-average declines accelerating
among smaller plans, where both recordkeeping and fund fees
remain high due to legacy pricing and expensive share classes.
" We also see fee compression accelerating in the smaller-plan
market as optionality remains high with the expansion of digitalfirst
providers such as Guideline and Vestwell, for example, as well
as maturing pooled employer plan solutions, " Hoying says.
" As managed account
services become more
popular, ... they may be a
target for litigation where
proper due diligence was
not conducted. "
Providers have been working to increase plans' personalized
features. A common criticism of using TDFs in 401(k)
plans is that the participant's age becomes the sole determinant
for portfolio allocations. An alternative approach would be
to add personalized features to the plan, says Shawn O'Brien,
director, retirement with Cerulli Associates in Boston. However,
personalization can take many forms within workplace retirement
plans, including user-driven financial wellness programs
and meetings with a financial planner or coach. Personalization
options require plan sponsors to evaluate the specific features
and services offered across personalized financial solutions.
An October 2023 white paper, " The Benefits of Personalization
in Defined Contribution Plans, " issued by Cerulli with support
from Edelman Financial Engines, examines how plan sponsors
can analyze the value in managed account and financial wellness
programs. The report notes that managed account programs
remain the premier solution for delivering personalized advice
through a defined contribution plan. According to Plan Sponsor
Council of America data, 48.8% of plans offered managed
accounts in 2022, compared with 36.3% in 2019. As of Q2 2023,
Cerulli found that the top nine DC managed account programs
advise on more than $430 billion in assets.
WHAT'S AHEAD: Hoying says he expects consolidation in the
intermediary
segment, with registered investment advisers
20 PLANSPONSOR.COM January - February 2024
acquiring other firms to expand deeper into the retirement
industry. " We estimate that approximately 15% of all defined
contribution assets are recordkept today by a provider that lacks
scale or specialization within a specific market segment such as
large plans or nonprofits, " Hoying says. " We foresee continued
consolidation into 2024 targeted at
subscale recordkeepers
lacking specialization and a competitive cost structure. We
project that, by the end of 2025, the top five recordkeepers will
administer close to 70% of assets. "
Offering in-plan advice will be another trend this year, Hoying
maintains. Overall, managed accounts' growth has remained flat
relative to assets over the past three years. However, he says, 2024
should offer clear opportunities for retirement providers that can
enhance the in-plan advice value proposition by leveraging technology
capabilities to serve participants better. " Future advice
offerings that deliver real-time aggregation of data-e.g., outside
assets-as well as include guaranteed income solutions all at a
competitive price will drive default considerations with plan sponsors
and greater participant adoption, " he says.
Retirement Income
WHERE WE ARE: Jessica Sclafani, senior defined contribution
strategist for the Americas division of T. Rowe Price in
Baltimore, says sponsors' interest in retirement income options
continues to grow. She says most of her company's DC plan
sponsor clients have proactively asked about retirement income
solutions. " This doesn't mean plan sponsors are necessarily
implementing retirement income solutions, but they are significantly
more engaged on the topic and more likely to have a
stated opinion, " Sclafani says.
Plan participant demographics have partly driven sponsors'
interest. T. Rowe Price's 2023 Future of Fixed Income survey
found that 54% of sponsor respondents described their participants
as older than they were a decade ago. One-third of survey
respondents cited an aging workforce as a catalyst for reevaluating
their plan's fixed-income options based on their understanding
that " older participants are more likely to use the core menu fixedincome
investment options to de-risk their portfolio, " Sclafani
explains. " We saw the demographic factor as influencing a greater
interest in exploring and understanding the retirement income
landscape of products and services, but then also thinking about
what the investments on the core menu are that these
participants are likely to be using. "
WHAT'S AHEAD: Sclafani points out that
retirement income solutions are often
discussed as being synonymous with
lifetime income or guaranteed income
solutions. She says this results in a
" myopic focus on annuities, " which is
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