Q1 2024
DC Pulse // 1Q 2024 in Review
Stay informed with the latest research, regulatory updates, returns and emerging trends in the DC landscape.
-
MFS DC Takes
1Q2024
MFS DC Takes
How well do participants understand target date funds?
Solid understanding of some target date features...
...but more education may be needed on others
No clear path on how participants will use TDF's in retirement
Sponsor Spotlight: Adding to the Confusion
Sources
MFS 2023 Global Retirement Survey, US respondents. Top Q: Please indicate the extent to which you agree with each of the statements below about TDFs. Percentages represent the sum of respondents that chose strongly agree or agree with each statement. This question was posed to respondents that answered they are invested in a TDF. Bottom Left Q: When you retire, do you expect to continue in a TDF? A target date fund is a fund whose allocation to stocks and bonds is designed to become more conservative as you near retirement or reach a certain age. TDFs = target date funds.
MFS 2023 DC Plan Sponsor Survey. Bottom Right Q: A. Does your plan want to keep participants’ assets in the plan after they retire? B. Does the glidepath end at retirement age or does the portfolio continue to get more conservative through retirement?
-
DC Regulatory and Legislative Happenings
DC Regulatory and Legislative Happenings
401Kids
In January, Democrats introduced 401Kids Savings Account Act of 2024, bicameral-proposed legislation aimed at creating children’s savings accounts, which could be used toward college, starting a business, housing or retirement savings.
The proposed bill would create a savings account for all newborns and children under age 18. Families could contribute up to $2,500 per year toward the accounts and lowerand moderate-income families would receive federal support. Participants could withdraw funds starting at age 18.
The accounts would be built on state 529 plan platforms and managed by state treasurers.
Federal Auto-IRAs
In February, Representative Richard Neal introduced the Automatic IRA Act of 2024.
The proposed legislation would require employers with more than 10 employees, who do not have a retirement plan, to automatically enroll workers in IRAs or similar vehicles at a rate of at least 6% and increases annually to 10% of compensation beginning in 2027.
The bill would carve out employers who have enrolled in state programs by 2027.
Many retirement firms and trade groups have voiced support for the bill.
CITs in 403(b)s…maybe
In March, the House of Representatives passed H.R. 2799, Expanding Access to Capital Act.
In the legislative proposal, 403(b) plans managed under ERISA would be given the authority to use collective investment trusts (CITs).
The bill was passed along party lines. It now moves to the Senate, but the timeline for consideration is not clear.
As a reminder, SECURE 2.0 updated required tax law to permit CITs in 403(b) plans but did not make necessary changes to the securities laws.
Fiduciary Rule Progress
In March, the DOL sent a final version of the Retirement Security Rule: Definition of an Investment Advice Fiduciary to the Office of Management and Budget (OMB) for review.
The text of the Fiduciary Rule will not be available until it is released. During the public comment period, the DOL received approximately 425 substantive comment letters and nearly 20,000 petitions to the proposal.
OMB review can take up to 90 days and is the final stage of the regulatory process before a final rule is published.
The final rule will likely be released near the end of May, not far from the original timing outlined in the first release of the proposed rule.
Sources:
https://www.congress.gov/bill/118th-congress/senate-bill/3716/text?s=1&r=2.
https://democrats-waysandmeans.house.gov/media-center/press-releases/neal-introduces-automatic-ira-bill.
https://clerk.house.gov/Votes/202478.
https://www.groom.com/resources/dol-sends-final-fiduciary-rule-to-omb/?utm_source=vuture&utm_medium=email&utm_campaign=retirement.
-
DC Market Data
DC Market Data
Projected growth of target date funds, but will participants stay in plan?
Growth of TDFs in 401(k)s1
Should I stay or should I go?
Sources:
1 The Cerulli Report, U.S. Defined Contribution Distribution 2023, Adapting to Fiduciary Trends in the Advisor-Sold Market.
2 Vanguard, Retirement distribution decisions among DC participants, February 2023.
3 ICI Research Perspective: The Role of IRAs in US Households’ Saving for Retirement, 2024.
4 The Cerulli Edge U.S. Retirement Edition, The Retirement Plan Rollover Issue, 4Q 2023.DC Market Data
DC Net Flows: Total (Blue Line) and by Fund Type ($B)
DC plan assets reached $10.6 trillion, of which $7.4 trillion was held in 401(k) plans.
Sources:
Investment Company Institute. 2024. “The US Retirement Market, Fourth Quarter 2023” (March 2024). https://www.ici.org/system/files/2024-03/ret_23_q4_data.xls.
1 Hybrid funds invest in a mix of equities and fixed-income securities. The bulk of lifecycle and lifestyle funds is counted in this category.
Note: Components may not add to the total because of rounding. Data is as of the most recent date for which there is available data.
-
Investment Index Returns
Investment Index Returns
As of March 31, 2024
Sources:
SPAR, FactSet Research Systems Inc., MFS analysis. Illustrative 60/40 portfolio comprises 60% S&P 500 and 40% Bloomberg US Aggregate and is rebalanced monthly. This hypothetical example is for illustrative purposes only. MSCI indices shown are net returns. Returns for the Bloomberg Global Aggregate Index are hedged to USD.
Cash is based on returns for the FTSE 3-month Treasury Bill Index.
The historical performance of each index cited is provided to illustrate market trends; it does not represent the performance of a particular MFS® investment product. It is not possible to invest directly in an index. Index performance does not take into account fees and expenses. Past performance is no guarantee of future results. You should consider your client’s financial needs, goals, and risk tolerance before making any investment recommendations.
Disclosures
Survey methodology
Source: 2023 MFS Global Retirement Survey. US Results. Methodology: Dynata, an independent third-party research provider, conducted a study among 1,000 Defined Contribution (DC) plan participants in the US on behalf of MFS. MFS was not identified as the sponsor of the study. To qualify, DC plan participants had to be ages 18+, employed at least part-time, actively contributing to a 401(k), 403(b), 457, or 401(a). Data weighted to mirror the age/gender distribution of the workforce. The survey was fielded between March 15–April 13, 2023. “Standard & Poor’s® ” and “S&P® ” are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by Massachusetts Financial Services Company (“MFS”). The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS’ product(s) is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates make any representation regarding the advisability of investing in such product(s). Frank Russell Company ("Russell") is the source and owner of the Russell Index data contained or reflected in this material and all trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor or endorse the content of this communication. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively "Bloomberg"). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI. Source FTSE International Limited ("FTSE") © FTSE 2023. "FTSE®" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data and no party may rely on any FTSE indices, ratings and/or data underlying data contained in this communication. No further distribution of FTSE Data is permitted without FTSE's express written consent. FTSE does not promote, sponsor or endorse the content of this communication. Disclosures The views expressed are those of the author(s) and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor. No forecasts can be guaranteed.
1Q2024
MFS DC Takes
How well do participants understand target date funds?
Solid understanding of some target date features...
...but more education may be needed on others
No clear path on how participants will use TDF's in retirement
Sponsor Spotlight: Adding to the Confusion
Sources
MFS 2023 Global Retirement Survey, US respondents. Top Q: Please indicate the extent to which you agree with each of the statements below about TDFs. Percentages represent the sum of respondents that chose strongly agree or agree with each statement. This question was posed to respondents that answered they are invested in a TDF. Bottom Left Q: When you retire, do you expect to continue in a TDF? A target date fund is a fund whose allocation to stocks and bonds is designed to become more conservative as you near retirement or reach a certain age. TDFs = target date funds.
MFS 2023 DC Plan Sponsor Survey. Bottom Right Q: A. Does your plan want to keep participants’ assets in the plan after they retire? B. Does the glidepath end at retirement age or does the portfolio continue to get more conservative through retirement?
DC Regulatory and Legislative Happenings
401Kids
In January, Democrats introduced 401Kids Savings Account Act of 2024, bicameral-proposed legislation aimed at creating children’s savings accounts, which could be used toward college, starting a business, housing or retirement savings.
The proposed bill would create a savings account for all newborns and children under age 18. Families could contribute up to $2,500 per year toward the accounts and lowerand moderate-income families would receive federal support. Participants could withdraw funds starting at age 18.
The accounts would be built on state 529 plan platforms and managed by state treasurers.
Federal Auto-IRAs
In February, Representative Richard Neal introduced the Automatic IRA Act of 2024.
The proposed legislation would require employers with more than 10 employees, who do not have a retirement plan, to automatically enroll workers in IRAs or similar vehicles at a rate of at least 6% and increases annually to 10% of compensation beginning in 2027.
The bill would carve out employers who have enrolled in state programs by 2027.
Many retirement firms and trade groups have voiced support for the bill.
CITs in 403(b)s…maybe
In March, the House of Representatives passed H.R. 2799, Expanding Access to Capital Act.
In the legislative proposal, 403(b) plans managed under ERISA would be given the authority to use collective investment trusts (CITs).
The bill was passed along party lines. It now moves to the Senate, but the timeline for consideration is not clear.
As a reminder, SECURE 2.0 updated required tax law to permit CITs in 403(b) plans but did not make necessary changes to the securities laws.
Fiduciary Rule Progress
In March, the DOL sent a final version of the Retirement Security Rule: Definition of an Investment Advice Fiduciary to the Office of Management and Budget (OMB) for review.
The text of the Fiduciary Rule will not be available until it is released. During the public comment period, the DOL received approximately 425 substantive comment letters and nearly 20,000 petitions to the proposal.
OMB review can take up to 90 days and is the final stage of the regulatory process before a final rule is published.
The final rule will likely be released near the end of May, not far from the original timing outlined in the first release of the proposed rule.
Sources:
https://www.congress.gov/bill/118th-congress/senate-bill/3716/text?s=1&r=2.
https://democrats-waysandmeans.house.gov/media-center/press-releases/neal-introduces-automatic-ira-bill.
https://clerk.house.gov/Votes/202478.
https://www.groom.com/resources/dol-sends-final-fiduciary-rule-to-omb/?utm_source=vuture&utm_medium=email&utm_campaign=retirement.
DC Market Data
Projected growth of target date funds, but will participants stay in plan?
Growth of TDFs in 401(k)s1
Should I stay or should I go?
Sources:
1 The Cerulli Report, U.S. Defined Contribution Distribution 2023, Adapting to Fiduciary Trends in the Advisor-Sold Market.
2 Vanguard, Retirement distribution decisions among DC participants, February 2023.
3 ICI Research Perspective: The Role of IRAs in US Households’ Saving for Retirement, 2024.
4 The Cerulli Edge U.S. Retirement Edition, The Retirement Plan Rollover Issue, 4Q 2023.
DC Market Data
DC Net Flows: Total (Blue Line) and by Fund Type ($B)
DC plan assets reached $10.6 trillion, of which $7.4 trillion was held in 401(k) plans.
Sources:
Investment Company Institute. 2024. “The US Retirement Market, Fourth Quarter 2023” (March 2024). https://www.ici.org/system/files/2024-03/ret_23_q4_data.xls.
1 Hybrid funds invest in a mix of equities and fixed-income securities. The bulk of lifecycle and lifestyle funds is counted in this category.
Note: Components may not add to the total because of rounding. Data is as of the most recent date for which there is available data.
Investment Index Returns
As of March 31, 2024
Sources:
SPAR, FactSet Research Systems Inc., MFS analysis. Illustrative 60/40 portfolio comprises 60% S&P 500 and 40% Bloomberg US Aggregate and is rebalanced monthly. This hypothetical example is for illustrative purposes only. MSCI indices shown are net returns. Returns for the Bloomberg Global Aggregate Index are hedged to USD.
Cash is based on returns for the FTSE 3-month Treasury Bill Index.
The historical performance of each index cited is provided to illustrate market trends; it does not represent the performance of a particular MFS® investment product. It is not possible to invest directly in an index. Index performance does not take into account fees and expenses. Past performance is no guarantee of future results. You should consider your client’s financial needs, goals, and risk tolerance before making any investment recommendations.
Disclosures
Survey methodology
Source: 2023 MFS Global Retirement Survey. US Results. Methodology: Dynata, an independent third-party research provider, conducted a study among 1,000 Defined Contribution (DC) plan participants in the US on behalf of MFS. MFS was not identified as the sponsor of the study. To qualify, DC plan participants had to be ages 18+, employed at least part-time, actively contributing to a 401(k), 403(b), 457, or 401(a). Data weighted to mirror the age/gender distribution of the workforce. The survey was fielded between March 15–April 13, 2023. “Standard & Poor’s® ” and “S&P® ” are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by Massachusetts Financial Services Company (“MFS”). The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS’ product(s) is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates make any representation regarding the advisability of investing in such product(s). Frank Russell Company ("Russell") is the source and owner of the Russell Index data contained or reflected in this material and all trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor or endorse the content of this communication. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively "Bloomberg"). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI. Source FTSE International Limited ("FTSE") © FTSE 2023. "FTSE®" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data and no party may rely on any FTSE indices, ratings and/or data underlying data contained in this communication. No further distribution of FTSE Data is permitted without FTSE's express written consent. FTSE does not promote, sponsor or endorse the content of this communication. Disclosures The views expressed are those of the author(s) and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor. No forecasts can be guaranteed.
50560.9