Defined contribution plan executives increasingly are
replacing brand-name mutual funds with no-name options, trying to simplify
investment lineups, increase portfolio diversity and reduce fees. With names
like white label, plain label or private label, these investment options often
are used by larger DC plans to create multimanager funds for all or some of the
investment lineup.
In many cases, sponsors leverage their defined benefit plan
managers in the process. Plus, they create options with generic names that
better describe the investment strategies than the names of brand-name mutual
funds.
Scott Brooks, managing director for defined contribution at SEI
Investments Co., is leading a study among members of the Defined
Contribution Institutional Investment Association on plans implementing a
white-label strategy. The biggest challenges, he said, are the need for
increased oversight, the operational complexity of multimanager options and the
need to communicate with participants.
Used by 24%
A recent study of 73 large DC plans showed that 24% employed
white label options, with just less than half of this group offering an
all-white-label lineup. Among those choosing white label options, 71% said they
combined multiple managers under one option; 64% said the white label approach
gave them flexibility to change managers; 57% said this strategy helped
participants better understand their choices; and 43% said they acted to lower
fees.
In an effort to simplify its $630 million 401(k) plan, Hanesbrands
Inc., Winston-Salem, N.C., switched its whole investment lineup to a white
label approach. For example, the plan had three large-cap equity funds before
switching to white labeling in June. The
lineup now contains four multimanager options and three single-manager options,
as well as the company stock fund and a target-date fund series.
Executives at DC plans with $500 million or more in assets
are talking to Callan Associates Inc. about “at least getting one
white-label fund” into their investment lineups, said Lori Lucas, the firm's
Chicago-based executive vice president and defined contribution practice
leader.
Moving to a core menu of white-label funds was part of an
investment menu overhaul of the $2.3 billion 401(k) plan at Farmers Insurance
Inc. The old structure had 11 core options, most of which were mutual funds
that were really expensive. White-label options are “significantly cheaper.”
Now, white-label core investments feature a pair of
passively managed options and a trio of actively managed options. The stock
index option and the bond index option have single-managers. The actively
managed stock option has five managers, the actively managed bond option has
three managers, and the actively managed stable value fund has one manager.
Easier to understand
For the $7.1 billion Massachusetts Deferred Compensation
Plan, Boston, the switch to an exclusively “plain label” lineup in June 2012
was based on making choices easier to understand for participants, said David
Lynch, executive director of deferred compensation. Single-manager, brand-name
funds are now “plain-label” funds.
The plan has 14 single-manager funds as well as two
multimanager options that have been available for more than 10 years. Given the
plan's asset size, Mr. Lynch is trying to spread investment risk and manager
risk by switching a couple of single-manager funds to multimanager options
under the “plain label” banner.
Click
here to access the full article on Pensions & Investments.