The U.S. defined contribution market is a $9.3 trillion industry at mid-year, according to data from the Investment Company Institute. And it relied on a whole ecosystem of asset managers, recordkeepers and other service providers to support the millions of American workers who rely on these retirement savings plans.
We asked all 742 advisors who participated in our survey to rate the target-date providers, recordkeepers and Erisa legal advisors with whom they worked. Advisors came from all channels.
Out of our respondent pool, 358 advisors advised at least four DC plans. About 20%, or 148 respondents qualify as specialists, advising 21 plans or more.
Recordkeepers are the front line in participant communications and service. We asked advisors to vote on various components of recordkeeper support, and to also pick their overall favorites. When thinking about all components together, advisors picked Capital Group’s American Funds as their the gold-standard, followed by Fidelity. Empower Retirement slipped two spots to bronze overall, despite still stealing the gold in specific areas.
We also asked advisors to rate recordkeepers specifically on the tools they offer participants, overall service, reporting, cybersecurity protocol and price.
Plan sponsors seeks providers who can help guide their participants. In the past three years, advisors have consistently praised Empower Retirement, earning it the top spot for participant-facing support. Meanwhile John Hancock this year bumped Principal from the bronze medal spot.
When it comes to client service, advisors say that American Funds parent Capital Group winds gold, knocking out the two-year running champion Empower, which slipped to third place among this year's cohort of voters.
Reporting is a key function for both participants tracking their investments, contributions and performance, and for sponsors, who need to navigate discrimination testing rules, assess plan design and understand employee savings behavior. Empower remains the top provider for 2022, according to advisors. Principal and Hancock tied for bronze.
Cost is also a major factor. Some plan sponsors pass the expense of recordkeeping on to employees, while other cover it as part of the overall benefit to workers. In either case, it’s an important consideration when assessing recordkeeper partners.
Sponsors generally appreciate flexibility in models. Some recordkeepers charge based on the number of participants in a plan, others based on assets. Still others will charge separately for specific services, such as Form 5500 reporting or discrimination testing. Each model may appeal to different types of employer, based on the size of their workforce, savings rates or other factors.
Advisors surveyed said that they find American Funds to be the recordkeeper that offers the best value based on price, followed by Empower.
Cybersecurity is a growing concern for plan sponsors, their participants and the advisors who connect them.
A breach at Alight in March spotlighted the issue. An industry-wide shift to remote work has also caused security concerns while last year the Department of Labor issued cyber guidance, Ignites has reported. In 2021, one-third of recordkeepers told Cerulli Associates they intended to hire cyber security staff. Fidelity, for its part, said it had 800 cyber-guards at work in its recordkeeping business, as reported by Ignites.
Meanwhile, the cost of insurance to protect against such breaches it skyrocketing over the past two years, government data reported by Financial AdvisorIQ shows.
Advisors ranked Fidelity as the provider with the strongest cyber fortress, followed by Greenwood Village, Colorado-based Empower.
Top-Tier Target Dates
Target date funds have become a favorite qualified default investment alternative of plan sponsors. In fact, the market represented more than $3.3 trillion at the start of 2022, according to Morningstar Direct data.
ICI data shows that in 2019, target-date funds accounted for 31.3% of all 401(k) market assets, according to an August 2022 industry Top 10 Facts listing published by the industry advocacy and lobbying group.
And automatic deferrals mean that even during market downturns, these products tend to continue to attract new money.
Morningstar’s 2022 Target Date Landscape report shows that fees are a key element in the funds’ sales success, as plan sponsors are especially sensitive to the wave of litigation that has swept the industry.
The average asset-weighted fee for target date funds fell 3 basis points to 34bps in 2021, compared to 37 bps in 2020. And the lowest quintile-cost share classes hoovered up the lion’s share of flows, according to the Morningstar report.
This year, advisors chose American Funds as the best target-date family.
Plan sponsors and the advisors who support them look to law firms for help navigating the rules around retirement plans, which are subject to the Employee Retirement Security Act.
Erisa lawyers are a key component in ensuring sponsors deliver effective plans and help refine design and oversight protocol. These service providers keep sponsors and advisors apprised of changing rules and best practices with regular research, outreach and other events.
Below are the law firms advisors say they consider the best-in-class for such guidance.