PLANSPONSOR - September 2017 - 24

Upfront
Nonproprietary TDFs Gain Attention
RECORDKEEPERS that offer their own
target-date funds (TDFs)-called " proprietary "
funds-are losing a share of assets on
their own platforms. According to a study
conducted jointly by AllianceBernstein
L.P. (AB) and BrightScope-which, like
PLANSPONSOR, is a Strategic Insight
company-plan sponsors are increasingly
choosing funds from other providers,
given the growing array of solutions that
offer benefits such as enhanced diversification,
lower fees, multiple managers, etc.
Between 2009 and 2014, defined
contribution (DC) plans cut back on using
recordkeepers' proprietary TDFs by 16
percentage points-from 59% to 43%-
and expanded the use of nonproprietary
TDFs, such as those offered by outside
asset managers, by 16 percentage points.
Jennifer DeLong, head of defined
contribution at AB in New York City,
says, " We've seen fewer plan decisionmakers
choosing funds offered by
recordkeepers-they used to be offered
discounts, and it was easier to choose
proprietary funds. We wanted to see if
we could get data behind that shift, and
we thought BrightScope would be a good
source, as it has a robust data source of
plans of all sizes. "
As for why proprietary funds are
losing market share on their own platforms,
DeLong says, clearly more TDF
fund options are available today than in
the past. The research found the number
of target-date providers has risen 16% from
five years ago, as more asset managers have
started offering new target-date solutions.
About 78 firms offer over 139 different
target-date fund series today.
More TDF fund
options are
available today
than in the past.
" So perhaps plan sponsors and
advisers are taking a closer look at the
wider range of options to see what is the
best fit for their plans, " DeLong says. " In
addition, there is more focus on fiduciary
decisionmaking and litigation going on
in the defined contribution plan space. It
is a fiduciary duty to make the best decisions
for plans and participants. "
Today, large plans are seen to be
leading the migration to choose TDFs
other than their recordkeeper's offering
as they decouple their recordkeeper
choice from their target-date selection. In
the largest plans-those with more than
$1 billion in assets-the penetration of
proprietary TDFs is the lowest, at 31.7%,
compared with 38.4% in 2009.
More than 60% of smaller plans-
those with less than $10 million in
assets-however, because of limited flexibility
still use recordkeeper TDFs.
" We usually see trends start with
larger plans and move to smaller plans, "
DeLong says. " Larger plans have more
resources and staff to be able to take a
closer look. We expect the trend will make
its way to smaller plans, over time. "
Also according to the research,
from 2009 to 2014, target-date collective
investment trusts (CITs) nearly doubled
in terms of target-date assets, from 29%
to 55%. Meanwhile, target-date mutual
funds saw their usage fall from 68% to
42% over the same period.
DeLong cites AB research showing
that, as of now, there are about 63 CIT
target-date series, more than the firm
had expected. The move to CIT TDFs
has resulted from an overall focus on
fees, DeLong believes. " Clearly the way
to provide solutions [including] lower fees
is with CITs, and there are more available
than there used to be. " -Rebecca Moore
Proprietary TDF Assets Have Decreased in All Plan Segments
n 2009 n 2013 n 2014
81%
65%
61%
80%
67%
60%
79%
64% 62%
74%
66%
59%
76%
65%
57% 60% 57%
50%
38%
34% 32%
<$10mm
$10mm - $50mm
>$50mm - $100mm >$100mm - $250mm
>$250 - $500mm
Source: AllianceBernstein L.P. (AB) and BrightScope, a Strategic Insight company
>$500mm - $1b
>$1b
24 PLANSPONSOR.com September 2017
http://www.PLANSPONSOR.com
PLANSPONSOR - September 2017

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