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.


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