Find here a link to our sister publication’s chart denoting
the 2018 maximum benefit and contribution limits set by the IRS, including current
and historical limits on all types of tax-advantaged retirement accounts.
Readers may view and/or download PLANSPONSOR Magazine’s Internal Revenue
Service (IRS) maximum contribution/benefit limit chart for 2008 to 2018 here.
The helpful document displays all important IRS limits set
for tax-qualified retirement plans. The data includes annual contribution limits,
compensation limits, highly compensated thresholds, SIMPLE contribution limits,
income limits for Social Security, catch-up contributions and more.
Growth in TDF Market Underscores Proprietary Product Debate
The drivers behind a target-date manager offering open
architecture most commonly include the belief that participants benefit from
asset manager diversification and the need to outsource allocations to access best-in-class
strategies, Cerulli reports.
The October 2017 issue of The Cerulli Edge – U.S. Monthly Product
Trends Edition discusses the use of open-architecture investing strategies as a way for target-date
fund (TDF) managers to benefit from increased demand and a greater desire for
transparency.
As the report lays out, the main forces behind a given target-date
manager choosing
open architecture most commonly include the belief that participants
benefit from asset manager diversification and the need to outsource
allocations where they do not offer best-in-class strategies, according to 77%
and 69% of managers, respectively.
On the other hand, for managers steering away from open-architecture
approaches, the main reason is “having in-house expertise already,” and also the
fact that incorporation of unaffiliated managers “would increase the overall
expense ratio of the fund.”
Finding merit in both sides, Cerulli contends the choice of a
target-date fund glide path is “arguably the most important decision for plan sponsors
relative to the long-term outcomes of plan participants.” Cerulli further asserts
that, by gaining an understanding of employee demographics and plan sponsor
perspectives on retirement savings and investing, target-date managers are
better positioning themselves to convey how their product’s glide path aligns
with various plan objectives.
Other data shared by Cerulli shows, across mutual fund and
collective investment trust (CIT) target-date products, the top-three managers
own 62.6% of the market, while the top 10 account for 88.9%. Cerulli
researchers argue this level of concentration “makes the space extremely
challenging to successfully launching new product.” Furthermore, asset managers
without well-rounded asset allocation capabilities “are generally unable to develop
and distribute their own target-date series.”
Despite these challenging barriers to entry, Cerulli points
to open-architecture series as a way for managers to benefit from increased
demand for target-date products. As Cerulli explains, in open-architecture
funds, target-date managers look to unaffiliated asset managers, often
boutiques with best-in-class capabilities, to manage sleeves of the fund. According
to Cerulli’s survey of target-date managers, “exactly half offer
open-architecture products—27% offer only open-architecture funds and another
23% offer both open- and closed-architecture target-date products.”
The overall percentage of firms offering open-architecture
TDF products is up from 46% in 2016, the reporting shows.
“Asset managers have been more inclined to pursue
open-architecture arrangement funds for a number of reasons,” the report continues. Many viewed the 2013 DOL factsheet, Target-Date
Retirement Funds – Tips for ERISA Plan Fiduciaries, as a likely motivator
for asset managers to pursue open-architecture funds, as it encouraged plan
sponsors to inquire about custom or non-proprietary target-date funds. However,
only 23% of target-date managers find it was a very important reason for them
to offer open architecture product. Again, the leading reasons for managers to
cite for pursuing open-architecture are the belief that participants benefit from
asset manager diversification and that managers need to outsource allocations
where they do not offer best-in-class strategies.
Cerulli’s research concludes that the outlook for open-architecture
is healthy, but not all positive: “While open architecture presents opportunity
for managers that can navigate the lengthy, arduous sub-advisory due diligence
process, there are limitations to this opportunity. For starters, only 12% of
those offering closed-architecture products indicate they plan to consider open
architecture, but do not expect a change over the next 12 months. The remaining
88% do not plan to move to open architecture.”
Additionally, many of the largest target-date series will likely remain closed architecture. Of closed-architecture managers surveyed by Cerulli, their
most important reasons for not using unaffiliated managers are that they
already have in-house expertise and that it would increase the cost of the
overall expense ratio. “Due to recent litigation, plan sponsors have been
hyper-vigilant of cost, leaving little incentive for managers to focus on
manager diversification, or truly finding best-in-class capabilities,” the
research states.
Information on obtaining Cerulli Associates research reports
is available here.