PLANSPONSOR - November/December 2024 - 19

two anti-ESG investing rules, while a Texas court is rehearing a
case, in light of the Chevron ruling, by Republican state attorneys
general challenging the DOL guidance.
Interest in ESG investments among participants, however,
appears to still be on the rise. More than three-quarters of 1,002
investors surveyed by Morgan Stanley said they were interested
in sustainable investing, and 57% said their interest has grown in
the past two years. More than half said they expected to increase
their sustainable investments over the next year.
Small
Employers
Gain Options
On the whole never really having been
able to offer retirement benefits to
their workers, small employers have
more options now than ever. In 17
states, employers also face a mandate
to facilitate participation in a state-run plan if they fail to offer one
on their own. Findings from the National Bureau of Economic
Research show that such mandates have boosted interest in private
retirement plans.
" It's interesting [since] many of the state plans don't have the
same regulations and hoops to jump through [that private plans
do], but, that being said, many entrepreneurs and small businesses
would still [prefer a private sector plan], " says Forrest Wilson, chief
retirement services officer at Alerus in Minnetonka, Minnesota.
Whether or not they live in states with an automatic-IRA
mandate, small business owners over the past year have benefited
from more cost-effective plan options, such as pooled employer
plans-an arrangement whereby multiple small employers join a
common plan, outsourcing some of the administrative duties and
getting access to the savings provided by scale.
An additional incentive motivating small businesses with
fewer than 100 employees is a three-year tax credit of up to
$5,000 per year to help cover plan startup costs.
Income
Solutions Keep
Evolving
The industry remained focused on
the decumulation problem, with more
than 90% of plan sponsors surveyed
by the Plan Sponsor Council of
America saying they were interested
in some retirement income solution. While uptake has lagged
interest, vendors this year continued offering both in-plan and outof-plan
products to help sponsors wanting a decumulation solution
for their participants. The past year saw the introduction of
hybrid target-date annuity products from heavyweights such as
BlackRock and Fidelity. Meanwhile, TIAA's and Nuveen's lifetime
income default target-date offerings are approaching $35 billion in
assets under management.
" We've seen some prominent solutions come to market this
year and some live implementations starting to hit, which we've
been waiting for for [several] years, " O'Meara says. " That's been
pretty meaningful, and it's changed the discussions from being
theoretical into 'We can actually implement something now.' "
As more employers consider incorporating such benefits into
their retirement offerings, plan participants are recognizing how
such products work-and how they could benefit from them. A
recent study by Nationwide found that 37% of employees age 45
or older are aware of guaranteed income. At 20 percentage points
higher than in 2023, that figure represents significant progress,
though it shows that the majority of workers still require education.
Managed
Accounts Enable
Personalization
Plan sponsors and their advisers are
increasingly re-evaluating whether
target-date funds based on a single
data point-projected retirement
age-provide the most optimal
outcomes. Discussions are evolving as to the recognition that, as
participants age closer to retirement, they may desire the more
tailored strategy delivered via managed accounts, Wilson says.
" With the data that the recordkeeper has, it can now put in
another five to 10 variables, such as the [person's] balance, geography,
industry, " he says. " And participants can add even more
variables, such as where they want to retire or outside assets. "
Driving further interest from plan sponsors, the cost of
managed accounts has come down substantially, from 45 through
60 basis points to options for under 20 basis points, he adds.
Still, uptake by participants has failed to ignite. More than
three-quarters of participants were offered access to managed
account advice last year, vs. 60% in 2019, says Vanguard's " How
America Saves 2024 " report. Yet, only 7% of participants were
using such a program.
One approach that more plan sponsors are exploring is a
dynamic qualified default investment alterative approach, which
starts participants in a TDF and then, at a certain age or asset
threshold, shifts them automatically into a managed account,
Burlie says. " One size doesn't fit all, so that dynamic QDIA
gains a whole lot more interest " than a standalone managed
account, he adds.
Alternative
Investments
Gain Ground
Whether available via brokerage
windows or embedded within
TDF or managed account investments,
alternative investments are
slowly making their way into workplace
retirement accounts. Of the DC-plan investment managers
surveyed by Cerulli Associates, about one in five said they already
include private real estate in DC multi-asset-class products, and
8% said they include private equity. Another 4% said they were
planning to add private equity in the next year, and nearly a quarter
said they would consider doing so if approached by consultants
or advisers. Proponents of incorporating additional asset classes
into retirement portfolios cite concerns about the concentration
risk for portfolios heavily invested in stock market indexes, which
are skewed heavily toward a handful of high-valuation companies.
" In the past 20 years, the number of publicly traded companies
has gone down precipitously, " Levine says. " So, we're seeing
more and more interest in products-whether private real estate,
private equity or private credit-coming onto the market. You're
starting to see that growth there. " -Beth Braverman
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