Callan Releases Study of Investment Manager-Sponsored 401(k) Plans

CEO and Chief Research Officer Greg Allen authors an analysis of the retirement plans investment managers offer their own employees

SAN FRANCISCO--()--Callan, a leading institutional investment consulting firm, announced today the release of The Cobbler’s Shoes: How Asset Managers Run Their Own 401(k) Plans. The white paper explores what the investment management industry, the stewards tasked with managing the investments of 401(k) plans for others, do for their own employee base.

Co-authored by Mr. Allen and Matt Loster, a vice president in Callan’s Measurement Development Group, the paper analyzes U.S. Department of Labor data of 157 asset management firms and compares that dataset to a broader population of 55,000 plans. The analysis examined a number of key metrics of savings behavior at the plan level and then delved into the design of the investment lineups.

“We were curious about the investment management industry for a variety of reasons,” said Mr. Allen. “Their employees are investment professionals and presumably more engaged (and potentially vocal) about the design of their plans. They are also faced with the interesting question of employing products managed by their competitors, or in some cases, employing their own products. Ultimately, we were interested to see how these factors affected plan design and whether it resulted in meaningful differences from the broader population.”

Highlights from the study examining asset manager-sponsored 401(k) plans include:

  • Employee Ownership: There is an unexpectedly high correlation between high balances, high contribution rates, and employee ownership—8 of the top 10 firms in terms of average balances were privately held.
  • Belief in Active Management: Plans (and their participants) allocated a higher proportion of assets to active management strategies, likely reflecting the firms’ business models, as many of these firms oversee actively managed strategies.
  • Expense Management: Manager-sponsored plans generally have done a good job managing expenses (including fees), particularly given the allocation to active strategies relative to the broader population.
  • More Complexity: Plans generally embraced complexity over simplicity in their investment design, such as the breadth of options in their investment lineups and greater use of brokerage windows.
  • Participant Selection Differences: Asset allocation decisions of participants in manager-sponsored plans largely resembled the broader industry but with a few key differences:
    • Allocations to the “other” category and a lower adoption rate of target date funds relative to the broad industry (70% for the sample versus 91% for the broader industry)
    • Lower allocations to capital preservation funds (i.e., money market and stable value options), which could be suggestive of a longer-term investment perspective and appreciation for diversification
  • Employer Contributions a Priority: Investment managers have made employer contributions an important component of their benefits package—with all plans making some form of employer contribution to their plans in 2016 at a rate almost five times that of the broader population. This, along with other factors, has contributed to relatively higher average balances.

Mr. Allen, Mr. Loster, and others from Callan will be hosting a webinar discussing more results of this study on June 18. To learn more and register, click here.

About Callan

Callan was founded as an employee-owned investment consulting firm in 1973. Ever since, we have empowered institutional clients with creative, customized investment solutions backed by proprietary research, exclusive data, and ongoing education. Today, Callan advises on more than $2 trillion in total fund sponsor assets, which makes it among the largest independently owned investment consulting firms in the U.S. Callan uses a client-focused consulting model to serve pension and defined contribution plan sponsors, endowments, foundations, independent investment advisers, investment managers, and other asset owners. Callan has six offices throughout the U.S. Learn more at callan.com.

About Callan Institute

The Callan Institute aims to improve the best practices of the institutional investment community through research, education, and dialogue. To support this mission, the Callan Institute publishes practical research, hosts industry events, and sponsors a robust educational curriculum. Learn more at callan.com/callan-institute.

Contacts

Elizabeth Anathan
mediarelations@callan.com
415-274-3020

Contacts

Elizabeth Anathan
mediarelations@callan.com
415-274-3020