Raising the Bar

Plan sponsor solutions for crafting dynamic investment menus
Gabe Palacio

Selecting and monitoring the right suite of investments in a defined contribution (DC) plan lineup is a core part of a plan sponsor’s fiduciary responsibilities. However, with the plethora of investments available today, both standalone and in asset allocation portfolios, the resources needed to effectively perform the required due diligence can overwhelm even the most sophisticated plan investment committee. Many plan sponsors look for help in understanding the options available to them and ensuring that those on the menu are the best fit for a particular plan and its demographics. Three Morgan Stanley executives, Ed O’Connor, head of Retirement & Insured Solutions; Paul Ricciardelli, head of Investment Advisor Research; and Jeffrey Stein, Stable Value Senior Research Analyst, sat down with Alison Cooke Mintzer, editor-in-chief of PLANSPONSOR, to discuss this topic and the commitment Morgan Stanley is making to help plan sponsors navigate the investment landscape and fulfill their fiduciary duties through adding investment research resources, improving model portfolios and offering 3(38) fiduciary services.

PS: Ed, could you speak about the state of the industry and what you see as the most significant differentiators for plan sponsors as they look for help?

O’Connor: Defined contribution plans are one of Americans’ primary retirement savings vehicles. It is incumbent on investment professionals to raise the bar in order to give the participants in DC plans the best opportunity to retire with dignity.

More and more institutional capabilities are being delivered directly to participants. For example, here at Morgan Stanley, using the asset allocation advice of our Wealth Management Global Investment Committee, we have constructed target-risk and target-date models specifically for retirement plan sponsors to deliver to participants.

PS: Where does the investment solution concept fit with the broader retirement plan context, such as the qualified default investment alternative (QDIA) or automatic enrollment?

O’Connor: There will always be participants who want to make their own choices, so plan sponsors need the help of an investment professional to create a solid foundation for those choices. Those investment professionals, when backed by strong resources such as ours, are well-suited to meet that need and provide plan sponsors with the advice they deserve. Those same specialists with that deep bench are also in a great position to help plan sponsors create customized QDIAs. I see more and more QDIAs being customized. It’s amazing how quickly target-date funds (TDFs) have evolved over the last handful of years. And now we are seeing more and more customization of those solutions.

If you are customizing a target-date solution for a plan, the plan sponsor should look at the participant profile: Do I have employees who are generally younger or older? Do they keep their money in the plan or do they move on? Do we also offer them a pension plan that helps to augment their DC plan? I actually believe over time this standard of care will become a common feature of DC plans with target-date solutions.

PS: What makes 3(38) fiduciary services a better option for plan sponsors, particularly those offering custom solutions?

O’Connor: Plan sponsors have a lot on their plate, and turning over investment selection responsibility to a firm that focuses on managing wealth for institutions can allow them to allocate their attention to other parts of their business. It also can provide those plan sponsors with additional means to manage their fiduciary responsibilities.