DC Consultants Focused on Income Questions

Meeting income objectives in retirement is key for target-date funds, according to 401(k) consultants polled by PIMCO.

Evaluating glide path structures, fees, diversification of underlying investments and the probability of meeting retirement income objectives are target-date fund (TDF) investing steps deemed important by nearly all 58 consulting firms surveyed recently by PIMCO.

The firm recently released its ninth annual defined contribution consultant survey, revealing more than one-third (35%) of 401(k) consultants say the most important objective when evaluating TDF glide paths is maximizing asset returns while minimizing volatility relative to the retirement liability. 

Additionally, 31% rank maximizing income replacement during retirement as the top goal for glide paths. None of the firms surveyed reported maximizing expected retirement savings balances as the most important objective.

Rather than being too focused on maximizing the size of their savings, “consultants increasingly want target-date funds structured so they can meet an investor’s income objectives when they retire,” explains Stacy Schaus, executive vice president and PIMCO’s defined contribution practice leader. “They clearly prefer strategies that will minimize the risk of a plan participant falling short when she retires.”

When evaluating income replacement distributions, a significant majority (85%) of consultants say that a tighter distribution is more attractive in the current environment. Schaus says this results in less risk, but also less opportunity for gains.

The “Defined Contribution Consulting Support and Trends” survey found 93% of consultants believe adding diversifying fixed-income strategies is important or very important. They also strongly favor active management over index-tracking passive strategies as the preferred investment style when allocating to most asset classes, including bonds, emerging market equities and global asset-allocation strategies.

More than half recommend considering a multi-strategy liquid alternatives, while more than two-thirds recommend considering inflation-protection securities in order to help safeguard participant assets.

The survey includes data from 58 consulting firms across the U.S. serving over 8,500 clients with aggregate defined contribution assets in excess of $3.2 trillion. For additional survey highlights or other PIMCO DC publications, contact PIMCO at 888-845-5012 or pimcodcpractice@pimco.com.