By Lauren Bailey
A large majority (96%) of defined contribution pension plan sponsors were very or somewhat satisfied with their financial services managers in 2024, according to a new survey by Callan.
The survey, which polled DC plan sponsors, among which more than 90% had over $200M in assets, also found plans reported high levels of satisfaction with investment advisory services, on par with results from 2024 and 2023. Top areas of focus for respondents included investment management fees, fund/manager due diligence, and investment structure evaluation.
More than 70% of respondents monitored or benchmarked their managed account service in 2024. More than 90% reviewed fees and services, while more than 80% reviewed participant usage and interaction. About two-thirds reviewed the methodology and investment outcomes. There was also a sharp increase in the percentage of respondents that indicated they benchmark the performance of the managed account service, from 29% in 2023 to 63% in 2024.
When calculating fees, roughly half of respondents also evaluated sources of indirect revenue (e.g., revenue shared with the recordkeeper from managed accounts, brokerage windows, IRA rollovers, etc.).
Indeed, higher levels of scrutiny were seen for fees in 2024. The U.S. Supreme Court’s revival of a class action suit last month by employees against Cornell University for allegedly paying excessive recordkeeping or other fees has drawn even more attention to advisory fees.
“What the decision does is it amps up the cost and the risk to employers of litigation, generally,” said Michael Kreps, chair of Groom’s Retirement Services group. “It disincentivizes them from taking good risks, . . . like the types of risks that would lead to more innovative plans [like] experimenting with new types of investments or incorporating lifetime income — just doing general improvements to the plan.”
Callan’s survey found seven in 10 respondents calculated their DC plan recordkeeping fees within the past 12 months, while another 22% did so over the past three years.
When it comes to evaluating fees, Kreps noted that most employers hire consultants and lawyers that specialize in figuring out key structures that align plan sponsors’ and participants’ interests. “They come up with performance-based fee structures for asset managers. As the plan performance gets better, the partner gets a better deal.”
Andrew Greene, chief investment officer of the Toronto Transit Commission, has noted partners are open to renegotiating fees. He’s negotiated reductions for the organization’s defined benefit pension plan in areas where fund managers may be underperforming until they meet a benchmark or threshold. In one case, the manager suggested the reduction.
The plan has also been able to split out commitments into a couple tranches and still get close to economics. “We’ve done this in private markets to help with pacing as distributions have greatly slowed down the last few years.”
Plan sponsors have more bargaining power behind them to renegotiate fees, he said, adding that, in a tough market environment, any amount he can save the plan is significant.
The survey also found among the investment services received in 2024, 96% of respondents offered a target date suite and 93% used a target date fund (TDF) as their default for non-participant-directed monies. Among those that offer TDFs, eight in 10 used an implementation that was at least partially indexed. The share of active-only strategies dropped by a percentage point to 20%.
Just 12% of respondents said they evaluated a guaranteed lifetime income feature within a target date fund framework in 2024, but only 2% added such a feature to their target date fund offering. In 2025, 20% plan to evaluate such a feature, with 6% noting they plan to add one. Last year, few respondents reported they included or were considering the inclusion of alternative investments in their DC plan’s TDFs.
There was a sizable increase in DC plans offering an active/passive mirrored lineup versus those offering a mix of active and passive funds, with a mirror coming in at an all-time high of 50%. DC plans with a mix of active and passive investment funds (86%) were the most prevalent. Purely passive (13%) lineups remained a rarity, with a purely active menu being even more rare (1%).
Mutual funds and collective investment trusts (CITs) continued to be the most prevalent investment vehicles, with mutual funds (84%) offered by slightly more respondents than CITs (79%). Nearly a third (30%) of respondents offered white label funds, with more offering white label funds with multiple underlying managers than with a single underlying manager. The most common asset classes for white label funds with multiple underlying managers were non-U.S. equity and U.S. small- to mid-cap equity.
More than a quarter (27%) of respondents said that the managers of index-based funds in their core fund lineup engaged in securities lending, while 44% said their managers did not and another 29% were unsure.
Three-quarters of respondents did not offer an environmental, social, and governance fund in the core fund lineup; however, 7% said they’ll consider adding an ESG option in the future and 18% already do.
