T. Rowe Price, which has been in the defined contribution plan services arena for nearly 40 years, serves over 3,500 plan sponsors and two million retirement plan participants. EBN recently spoke with Aimee DeCamillo, the head of the company’s retirement plan services unit, about the company’s target-date fund glide path philosophy, the prevalence of managed accounts and the importance of digital experiences in boosting employee engagement in 401(k) plans.
Using TDFs as the qualified default investment alternative seems to be what everybody is doing these days. But when might plan sponsors want to take another approach?
We strongly believe that target-based funds are a very appropriate solution as a QDIA for most investors who want to delegate the investment and asset allocation decisions to a professional manager and help to maintain that long-term orientation as well as diversification, especially in times of market turbulence. But some plan sponsors, such as those with a strong defined benefit offering, may think about their QDIA through a different lens, and consider alternatives. And when you get down to the individual level, there are certainly circumstances where staying in the default may not be the optimal choice.
What is T. Rowe Price’s target-date fund glide path philosophy?
We don’t think of it from the “to” versus “through” perspective. We think of it with regard to the equity exposure at the time of retirement, and then through retirement. We actually do have different glide path options. One of them targets a 55% equity exposure at retirement, and the other is 42.5%. But by 15 years after retirement, their equity exposure is almost the same; one is 35%, the other, 34%. We believe equity exposure to some degree extending through retirement is important given the longevity risks.
Do you incorporate any “robo” elements into your retirement platform to help guide participant decisions?
Yes, but I would say it’s not necessarily new on the 401(k) side. [It’s] managed account solutions that are wrapped with advice [such as] services like Financial Engines and Morningstar within our 401(k) offering. We’re seeing more interest from plan sponsors. I wouldn’t say we’ve seen any tipping points in terms of adoption yet around those solutions, but I think the millennial population and the way they want to engage differently is certainly driving a different discussion within the industry, both on the wealth management side as well as on the retirement side.
How many participants are in managed accounts, and taking advantage of this technology?
It’s less than 10% of the total plan population for us, and on the participant level, it’s probably less than 2% of our overall participant base today.
So plan sponsors aren’t using the managed account as a default investment selection?
No, it would require an active selection by the individual participant.
Also see: “D.C. plan sponsors ‘hyper focused’ on fees.”
What are you doing to get participants engaged in their 401(k)s?
We’re offering a variety of digital experiences that have principles of behavioral finance embedded into them to drive new behaviors. An example is our confidence number, which is a high-level indicator when you log into our digital properties of the likelihood that you’ll achieve an appropriate income replacement ratio in retirement. And we’ve also infused gamification elements into these experiences.
How is that confidence number calculated?
We have some information on participants, but they can adjust the inputs. Things like contribution levels, at what age do you want to retire, with what income. The scale is from zero to 99. Participants can make adjustments, like increasing the contribution level, and see how that changes the confidence rating. But this doesn’t change the importance of plan design. The employer can help set its employees on the right track by, for example, auto-enrolling and auto-increasing deferral rates.
Also see: “15Five automates 401(k) plan.”
What are you recommending for default deferral rates?
Ideally we would love to see employers auto-enroll their employees at 10%, and then combined with a company match try to get close to 15% savings. But what we see most often is that employers are auto-enrolling at 3%. We actually did some research around millennials’ tolerance levels for auto enrollment. The average millennial was perfectly fine with being auto-enrolled at 6%, and nearly a third of them said they would not opt out of auto enrollment at even a 10% level.
Where is T. Rowe Price on the guaranteed lifetime income question, like making annuity solutions available?
We believe there is no silver bullet around retirement income, but that is a unique and complex topic. We talk to our plan sponsors about what is the best way to prepare their employees for this point of transition. To date we have not heard from them that guaranteed solutions are – until there is some regulatory relief from liability concerns – a desirable path. So we really look at pan design levels, participant experience, as well as programs that help to generate a paycheck for individuals that are seeking that ongoing stream of income. We do have a service called retirement income manager, which actually will allow that individual to develop that drawdown strategy and generate a paycheck from their 401(k) account.
Also see: “Annuities meaningless if savings ‘practically zero’.”
T. Rowe Price is not a big believer in passive investment strategies, is that right?
Yes, we’re an active manager, but we do believe that there’s a place for passive strategies. We support the notion that employers should have the right portfolio mix depending on their philosophy, their time horizons and what’s right for their employee populations as fiduciaries. But here at T. Rowe Price, 90% of our assets within retirement plan services are actively managed. We’re an open architecture platform, so the 10% would be non-T. Rowe Price funds. We do have a component part of our target-date glide path that is in one of our strategies that has some of our enhanced passive strategy, but it would not be included in that 10% because it still is actively managed in terms of the glide path and the overlay.
Richard Stolz is a freelance writer based in Rockville, Maryland.
Register or login for access to this item and much more
All Employee Benefit Adviser content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access