The New Era of DC Plan Menu Design

A trio of experts from Manning and Napier examine the “new era of DC plan menu design,” arguing encouraging developments are on the horizon.

By John Manganaro | July 25, 2017
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Shelby George, senior vice president for adviser services with Manning and Napier, kicked off a recent webcast by observing the incredible growth that has occurred since the mid-1990s in the target-date fund (TDF) marketplace.

“In 1994, when TDFs began, there were literally just one or two products on the market,” she noted. “Today there are some 60 TDF series available for plan participants, on our count, and the number continues to grow. This growth has been incredibly important in helping non-experts invest in much more effective and rational ways.”

Since the mid-90s, the industry has seen great improvement in the due diligence support wrapped around TDF products, particularly on the “glide path evaluation and decision question.”

“The added sophistication has been really important for helping plan sponsors feel confident and participants get on a much better track,” George said. “We also know today that there are still some 40% of people who say they prefer to manage their money on their own outside of a TDF, so it’s also important to keep these folks in mind when creating the menu. These do-it-myself participants are engaged, and they are demanding tools and support as well.”

According to Manning and Napier survey data, as many as 27% of participants say they have actually proactively opted out of a TDF auto-enrollment at least once, because they feel they have the ability to make decisions for themselves.

“Opportunity has expanded for advisers serving as investment advice fiduciaries, alongside this trend,” George added. “The majority are acting in a 3(21) capacity today, and as we have more and more advisers take on fiduciary responsibility, we see sponsors engaging advisers to do due diligence on both TDFs and single-asset-class holdings.” The result is streamlined and simplified investment menus.

Chris McAvoy, product Manager for multi-asset class solutions, said he is encouraged to see advisers come to understand the critical importance of offering an appropriate qualified default investment alternative (QDIA) according to the unique needs of any given plan. Given his role at Manning and Napier, it’s no surprise he argued that automatically diversified and rebalanced investment funds will generally serve participants best.

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