Data & Research April 1, 2013

Consultants Make Suggestions for DC Plan Investments

Ninety-eight percent of defined contribution (DC) investment consultants polled recommend clients offer a target-date or target-risk investment tier.
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According to PIMCO’s 7th Annual Defined Contribution and Consulting Support and Trends Survey, more than half (51%) of consultants believe a custom target-date approach is an improvement over current packaged funds. Eighty-one percent suggest the addition of Treasury inflation-protected securities (TIPS) to reduce risk in asset-allocation strategies.  

If plan sponsors decide to use managed accounts, the majority of DC investment consultants (55%) say they should be offered as an opt-in asset allocation choice only. Nearly one-third (32%) of consultants do not recommend managed accounts, while only 12% recommend them as the opt-out investment default.  

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Consultants rank evaluation of the glide path structure as most important in the selection or designing of target-date strategies.

(Cont’d…)

DC Plan Investment Structure  

On average, nearly all firms surveyed by PIMCO (96%) recommend clients offer one capital preservation option and two fixed income options in their plans, and 94% recommend six equity options. One inflation-hedging option (83%), a global balanced strategy (47%) and an alternative strategy (36%) were also selected frequently.   

Firms believe emerging market debt (61%), followed by commodities (49%) and risk mitigation strategies (e.g. tail-risk hedging) (45%) would bring the most value as added classes within an asset allocation strategy. Firms believe global or non-U.S. equity (59%), TIPS (47%), global or non-U.S. fixed income (43%) and diversified real assets (41%) would bring the most value as added asset classes within the core investment lineup of a DC plan.  

More than three-quarters of firms either actively promote (22%) or support (55%) client interest in re-enrollment.  

In order of importance, the three ways consultants believe plan sponsors can minimize litigation risk include documenting investment policies and processes, evaluate and confirm reasonable plan investment fees, and established an engaged DC investment oversight committee.  

For survey highlights or other PIMCO DC publications, call 888-845-5012 or email pimcodcpractice@pimco.com.

Compliance April 1, 2013

International Issues Affecting Retirement Plans

The Internal Revenue Service (IRS) offers material on its website about international issues affecting retirement plans in the U.S.
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International issues, including international tax compliance by large corporations and wealthy individuals, are a priority, according to the IRS. Through its Office of Employee Plans, the IRS says it is focused on addressing existing tax-related abuse, as well as preventing abuse.

To that end, the IRS website offers material about retirement plans in both Puerto Rico and the U.S. Virgin Islands. The material for Puerto Rico covers basic facts about the relationship between the U.S. and Puerto Rico concerning retirement plan qualification, and filing requirements and technical guidance (e.g., Revenue Ruling 2011-1). A questions-and-answers section covers topics such as: 

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  • Can the IRS audit Puerto Rican retirement plans?; 
  • Are plan sponsors liable for Internal Revenue Code (IRC) excise taxes?; and 
  • What is the tax effect if Puerto Rican plans fail any qualification requirements?

The material for the U.S. Virgin Islands includes a retirement plan comparison chart, as well as a questions-and-answers section on topics including: 

  • Which IRC sections apply to U.S. Virgin Islands retirement plans?; 
  • Can the IRS audit these plans?; and 
  • What is the tax effect if Virgin Islands plans fail any qualification requirements?

The IRS resources page also offers links to Employee Plans Compliance Unit international projects (e.g., Hacienda Project), as well as additional material such as a webinar about how international issues impact employee retirement plans.

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