Retirement Plan Design: Three Ideas To Drive Down Costs, Minimize Risk, and Improve Participant Outcomes

As a Retirement Plan Advisor at Strategic Wealth Partners, my role largely focuses on advising retirement plan sponsors on the myriad and complex aspects of retirement plan management.

To facilitate our work, we are members of the Retirement Plan Advisory Group (RPAG), a national alliance of retirement plan advisors and institutions. RPAG augments our team with CFA® Charterholders that focus on Plan Investments, ERISA Specialists, Plan Benchmarking Specialists, and Plan Consultants. These relationships allow the plan sponsors we serve at Strategic Wealth Partners to access opportunities that might not be available otherwise.

I recently attended the RPAG National Conference, an opportunity for RPAG members to share best practices and learn from industry thought leaders. This article will discuss some of the takeaways from the conference and several ideas to help retirement plan sponsors reduce plan costs, improve participant outcomes, and mitigate risk.

#1 Collective Investment Trusts (CITs)

Mutual funds offer a variety of different share classes. Some of those share classes are accessible by retail investors (with various fee structures), while other structures are reserved for institutional investors, like retirement plans. If you haven’t already done so, exploring Collective Investment Trusts (CITs) may help lower plan costs for your participants.

CITs are a unique type of pooled investment vehicle only available to qualified retirement plans. In a CIT, the assets of eligible investors (i.e., the “collective”) are combined into a single trust, which is maintained by a bank or a trust company.

Typically, plan sponsors receive a group discount, so to speak, on shares in a fund that are purchased on behalf of that individual plan’s participants. A CIT pools the assets of multiple plans directed by multiple plan sponsors, unlocking higher economies of scale and allowing them to access what’s known as “institutional shares,” which typically have the lowest expense ratios. Fund companies are happy to offer larger discounts to CITs because CITs offer predictability: funds can rely on a set amount of cash inflows and outflows, and that stability is valuable within a very dynamic marketplace.

This share structure, in turn, leads to lower overall plan costs for participants—and higher downside risk mitigation on the underlying securities than if each individual invested in the underlying securities on their own. For example, a large-cap value stock fund might offer shares for your organization’s retirement plan at an annual fee of 0.45% to 0.55%. When the shares are purchased as part of a CIT, however, the fee can be as low as 0.29%.  And those savings can make a huge difference—especially as the size of the plan increases.

 #2 Stable Value Funds

Many retirement savers are uncertain about the ongoing volatility in capital markets and the potential risk it could pose to their retirement portfolios, and Stable Value Funds can help address those concerns.

Stable Value Funds are very common in retirement plan vehicles like CITs, and they provide a path for more conservative investors to feel comfortable with their asset allocation strategy, which we know is essential. Stable Value Funds offer a portfolio of bonds for qualified retirement plans (401(k)s, profit-sharing, money purchase, governmental 457 plans, and some 403(b) plans).

In the current market environment, bonds and money market funds are popular alternatives to stocks—and with the Federal Reserve raising interest rates, money markets are offering returns anywhere in the 1–2% range, if not higher. However, bonds and money markets have drawbacks; namely, they are still subject to interest rate volatility.

For risk-averse investors, Stable Value Funds can be a good middle ground between the liquidity of cash and money market accounts and the stability of bonds. If your plan’s participants have shorter time horizons before retirement and are concerned about market volatility, Stable Value Funds can be a great tool to capture some returns while minimizing downside risk and protecting participants’ retirement savings.

#3 Target Date Funds

In a typical retirement plan, the majority of investments go into target date funds (TDFs). TDFs are designed to simplify the asset allocation process for plan participants.  By including a year in their name, participants simply have to choose the fund whose year most closely aligns with their anticipated retirement date.

These funds are accessible to anyone, but they can be especially useful when used in the aforementioned CIT. Compared to a target date series offered by a typical mutual fund, a CIT-based TDF offers roughly the same returns[1]; as noted above, however, the amount CITs can save in fees can make a massive difference in the bottom line for your plan’s participants. CIT-based TDFs can also offer active fund management for a very low cost, which can potentially further increase returns for plan participants.

If your plan participants have longer time horizons and prefer a more hands-off approach to their plan investments, an active TDF can potentially offer better performance over a longer period of time.

TDFs have a broad range of risk profiles, and many plan sponsors are not aware of the risk design built into the TDFs in a plan. In times of increased market volatility, plan participants may not be comfortable with the TDF risk profile in their plan.

 Closing Thoughts

 Whether or not you are familiar with any of the concepts described above, Strategic Wealth Partners has the experience and relationships necessary to help you build a retirement plan that can minimize costs for participants and improve participant outcomes. In doing so, your plan can become a strength that helps your organization attract and retain talent—as well as help your people build a retirement nest egg.

If you’d like a personalized review of your plan, we invite you to connect with our team.


[1] Pensions & Investments, CITs become preferred target-date series choice. (Link)



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