Bundled Approach Gains Among DC Plan Sponsors Pensions & Investments (07/24/00) Vol. 28, No. 15 p.6; Jacobius, Arleen
A new study from Morgan Stanley Dean Witter Investment
Management indicates that defined contribution plan sponsors
prefer bundled services and investments more than they do
unbundled managers or service providers with alliances. This
year, 59 percent of plan sponsors used a bundled provider,
compared to 52 percent last year; meanwhile, 25 percent this year
had an unbundled arrangement, and 16 percent used alliances.
Institutional mutual funds are becoming more popular, while the
use of retail mutual funds has dropped slightly, according to the
study. Use of commingled funds and separate accounts has also
gone up. Morgan Stanley head of institutional defined
contribution Ruth Hughes-Guden says that institutional mutual
funds are more style-consistent than typical retail mutual funds,
which explains their popularity. The study shows that plan
sponsors with 5,000 or more participants are more likely to mix
retail mutual funds with institutional ones. Mixes vary
depending on who makes the decisions--the treasury or finance
department, human resources, or both. The most popular styles
added this year, the study says, were aggressive, small-cap, and
active international and global. More plan sponsors are using
the same managers in their defined benefit and 401(k) plans. Of
those that do not, some say that the defined benefit offerings
are not suitable for their 401(k) plans, while others say that
they use different consultants for their different plans.
Hughes-Guden says that using the same managers brings additional
costs and can make it harder for participants to get information.
Most respondents found investment management fees very important,
followed by risk control measures, a clear investment process,
the quality of portfolio managers, and participant services.
Sponsors appear to be trying to find ways to make their defined
benefit plans as portable as their 401(k) plans, and they are
also focusing on providing services in their 401(k) plans.