PLANADVISER - May/June 2021 - 23

cover story | investments
ON THE POST-MODERN MENU
T
he plan menu continues to evolve, as plan advisers
help their clients create investment lineups that meet
the needs of workers, both now and in the future.
Specific trends that experts see include the following:
Income Options, In- and Out-of-Plan
As a growing percentage of plan participants reach retirement
age, there is a recognition by plan sponsors that
they need to offer products and investments that meet this
cohort's needs.
" Plan sponsors are making their plans more retiree-friendly, "
says James Martielli of The Vanguard Group Inc. " They're
allowing for partial withdrawals, allowing for
allowing for roll-ins. "
Besides wanting to ensure that workers are prepared to
retire when they want to, the focus on retirement income
products that are meant to keep retirees' assets in-plan also
reflects a recognition that losing those assets could affect
the size of the plan and some of its economies of scale.
Since the Setting Every Community Up for Retirement
Enhancement (SECURE) Act in 2019 eased the way for plan
sponsors to offer in-plan annuities, doing so is now an option
that plan sponsors may consider. But it is not the only path to
retirement income. Other options include managed payout
funds, longevity insurance and withdrawal benefits.
" From a product standpoint, retirement isn't one goal, it's
multiple goals, " Martielli says. " So there's no one silver bullet
that's going to solve everyone's retirement challenge. "
Incorporating ESG
The growing interest in investment options that take environmental,
social and governance (ESG) factors into account
reflects both increased demand from plan participants and
a higher level of scrutiny from companies that want to live up
to their own corporate sustainability goals.
Mike Geraci of Commonwealth Financial Network says
adding ESG funds to its recommended list is a key initiative
for his firm this year. " We are looking at ESG managers just
like we would any other manager. The fund has to have the
pecuniary investment to make it into the menu, " he says.
" The ESG manager has to compete with a non-ESG manager.
It's another flavor we look at that offers something different.
It's an emerging trend we talk about a lot. "
Incorporating ESG funds into a plan may also be a new
way for plan sponsors to increase contribution rates among
employees. The 2021 Shroders U.S. Retirement Survey found
installments,
that nearly seven in 10 plan participants said they would or
might increase their overall contribution rate if offered ESG
options within their employer's plan.
Plan sponsors are taking different approaches to ESG,
with some offering focused ESG funds and others suggesting
that participants get exposure to such investments via a selfdirected
brokerage account.
" We don't think there's a right answer on the best way for a
plan to bring in ESG, " says Chris Herman of Fidelity Investments.
" It's a fantastic area for advisers to get educated about and
engage with plan sponsors to work through solutions. "
Stable Value
Stable value plays an important role in a retirement plan,
says Martielli, but not every stable value fund is the same.
When selecting a stable value option, it is important for
advisers and sponsors to assess a fund's performance, risk
mitigation,
team and process.
" Taking a look at performance
is as important as understanding the market-to-book
value, " he says. " Look at what the overall market value of the
bond is relative to its book value. It should be higher than its
peers. By risk mitigation, I mean looking at the underlying
credit quality of the bonds. Some stable value products may
generate higher returns but take on higher risk. Look for an
experienced team doing this for quite some time and using
a robust process. "
An Opening for Alternatives
Last year, the Department of Labor (DOL) issued a letter
allowing plan sponsors to consider professionally managed
funds that include an allocation to private equity. After
watching defined benefit
(DB) plans increasingly allocate
larger shares of their portfolios to private investments, some
plan sponsors viewed the letter as an opportunity to see
whether such an allocation would make sense in the defined
contribution (DC) world.
They have started considering target-date funds (TDFs)
that include a small allocation to alternative investments
within the fund as a means of offering participants exposure
to asset classes possibly less correlated to stocks and bonds.
" Alternatives are definitely on the radar, particularly
among target-date managers, " says Paula Smith of Voya
Investment Management. " There's a trend to look at things
such as private real estate and private equity. You're going
to see more of those, but [alternatives don't] make sense as
a standalone fund in the plan. " -BB
planadviser.com May-June 2021 | 23
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PLANADVISER - May/June 2021

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