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U.S. Employers Looking to Enhance 401(k) Investment Structures, Towers Watson Survey Finds

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With millions of workers now relying on 401(k) plans as their primary retirement savings vehicle, U.S. employers are enhancing the investment structures of those plans, according to a new survey by global professional services company Towers Watson (NYSE: NASDAQ: TW). This includes replacing single, stand-alone investment options with multi-manager, white-label choices, implementing custom target-date fund (TDF) solutions and outsourcing all or portions of their 401(k) plan oversight.

“Employers are taking a close, hard look at the investment structures of their defined contribution (DC) plans, given the impact plan structures can have on the retirement outcomes,” said Sue Walton, director in Towers Watson’s Investment business. “In addition, many plan sponsors are beginning to embrace more complex and sophisticated strategies and structures as the challenge of meeting participant and plan needs increases.”

According to preliminary results from the Towers Watson 2014 Defined Contribution Survey, 40% of the 457 U.S. employers surveyed recognize that using a multi-manager, white-label investment strategy is a more efficient approach to active management than single, stand-alone active options. Additionally, about half of the respondents see the value of custom TDFs.

“Plan sponsors recognize that DC plans with investment lineups that include many single, stand-alone active funds are not the most efficient approach and have also produced subpar investment results for participants. Now, employers are looking at multi-manager, white-label options that promote fewer and simpler diversified options, which are more likely to lead to better outcomes,” said Walton.

According to the Towers Watson survey, 22% of plan sponsors have already implemented a custom TDF solution, while 27% may explore implementing one. “Plan sponsors are beginning to see the value in tailoring their TDF offerings. Unbundling the key decision points enables employers to align the glide path, portfolio construction and implementation of the funds to their plan objectives and participant demographics,” said Lorie Latham, director in Towers Watson’s Investment business. “We believe the Department of Labor’s release of TDF tips has influenced plan sponsors to evaluate custom TDF solutions as a viable alternative. Plan sponsors also understand the importance of their TDF offering and know they need to get it right.”

According to the survey, a growing number of plan sponsors are outsourcing the oversight of their DC plans. One-third of respondents currently delegate either all or a portion of their plans’ oversight, or may be interested in doing so.

“With DC plans now requiring more time and expertise from plan sponsors than ever before, it’s not surprising to see that outsourcing plan oversight is gaining traction,” said Walton. “As the investment opportunity set becomes increasingly more complex and the stakes get higher for the success of DC plans, employers need to consider the right governance equation, which may include seeking third-party partnerships.”

About the Survey

The Towers Watson 2014 Defined Contribution Survey was conducted in June and July 2014, and includes responses from 457 large and midsize U.S. companies that sponsor a DC plan. The full survey results will be available in October.

Towers Watson Investment

Towers Watson’s Investment business is focused on creating financial value for institutional investors through its expertise in risk assessment, strategic asset allocation, fiduciary management and investment manager selection. It has over 800 associates worldwide, assets under advisory of over US$2 trillion and over US$65 billion of assets under management.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at

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