PSNC 2013: Thinking Outside the Box

A standard mutual fund lineup may not be enough for your plan.

Defined contribution (DC) plans have always underperformed defined benefit (DB) plans, Scott Brooks, director and head of U.S. Defined Contribution at Deutsche Asset & Wealth Management, told attendees of a panel discussion at the PLANSPONSOR National Conference. Use of alternatives is unusual in DC plans, he said, but more common in DB plans. These funds’ performance (or failure) may be linked to their willingness (or reluctance) to employ alternatives. Brooks distinguished between alternative assets and alternative strategies, which use traditional assets to retrieve alternative returns. The use of either, he said, offers increased return potential for a plan.  

Doug Prince, CEO of ProCourse Fiduciary Advisors LLC, advised plan sponsors to consider the overall risk tolerance of their participants. What are the plan sponsor’s goals and objectives? Does the plan sponsor want people to stay in the plan—even after they leave the company? Active or passive?  

For target-date funds (TDFs), at least, Prince said: “There is no passive target-date fund.” He anticipates dramatic changes will be made to target-date funds in the next five to 10 years. There could be TDFs that consider more than just the target date of retirement. If a lifecycle/lifestyle hybrid fund was developed, plan sponsors could enroll their participants into a conservative, moderate or aggressive fund for their target retirement year.  

Prince explained the 90/9/10 rule to attendees: 

  • 90% of participants likely want the plan sponsor to “do it for them”; 
  • 9% of participants will want some leeway with their investments, but “in a padded room”; 
  • 1% of participants will want to do it themselves. 

With this in mind, Kevin Petrovcik, managing director and senior client portfolio manager at Invesco, said it should be every plan sponsor’s goal to find the best optimal return with minimal risk. He asked attendees: Wouldn’t you rather have an adviser directing asset allocation than individual participants?

 Sara Kelly