White Labeling DC Plan Investments May Offer Advantages

Among approximately 75 large employers, nearly one-quarter (24%) are currently using a white label approach to naming defined contribution (DC) plan investment options, Aon Hewitt finds.

By Rebecca Moore | September 02, 2014
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Nearly half (46%) are using this approach for their entire fund lineup, while the remainder white label only some of their funds.

Rob Austin, director of Retirement Research at Aon Hewitt, in Charlotte, North Carolina, tells PLANADVISER there are two main strategies for white labeling. The first is to take a singular fund and make the name generic. “For example, instead of listing the BlackRock U.S. Aggregate Bond Index, the fund would be presented to participants as the U.S. Bond Index fund,” he explains. This lets participants know the goals of fund and what it invests in, but makes it simpler for participants, he says.

The second strategy is like a fund-of-funds approach, when a plan sponsor offers a single fund option to participants called the Large-Cap Equity fund, for example, but assets in the fund are directed to several underlying funds. Even with funds-of-funds, such as target-date funds, Austin explains, some plan sponsors are white labeling them. “For example, instead of listing the J.P. Morgan SmartRetirement 2015 fund, a plan sponsor may call it the 2015 Retirement fund.”

Aon Hewitt found 71% of employers choose to white label in order to combine multiple managers under one fund. Austin says this is, in part, to improve returns and, in part, to streamline the fund lineup and make it easier for participants to invest effectively. “Companies ask, ‘Do we need four large-cap funds or can we just use one to get the same result?’” Austin explains. 

He points to the example of a DC plan sponsor that wants to diversify investment vehicle types without adding more complexity for participants. In this case, the sponsor could include more alternative investment vehicles within a white labeled fund-of-funds strategy—thereby bringing better diversification to the fund lineup.

Sixty-four percent of companies that white label DC plan investments told Aon Hewitt they opt for this approach to make it easier to change fund managers, if needed. “It’s more visible to change a singular fund, but if it’s all under large-cap, it may not even be noticed,” Austin says. It is also easier to switch out an underlying fund in a fund-of-funds approach because there doesn’t need to be a blackout period or time when participants have to make new elections, and participants do not have to be mapped to a new fund.