October 24, 2014
Potential increased fiduciary liability is another common deterrent. For example, even though the Pension Protection Act of 2006 explicitly permits plan sponsors to manage custom target date strategies within their plan, some are hesitant about assuming the responsibility of being the funds' investment manager. Nonetheless, a number of plan sponsors have overcome this hurdle and do manage their own custom target date funds.
More than one plan sponsor has been stymied in its pursuit of a best-in-class, defined-contribution plan by concerns about participant backlash. A good example is when sponsors consider streamlining a plan's investment funds with the intention of making the plan easier for participants to use, simpler for the sponsor to monitor and potentially less expensive because of greater economies of scale within the diminished fund lineup.
Perhaps one of the most insidious obstacles to the ideal defined-contribution plan is lack of focus by the plan sponsor. Many plan sponsors can identify features that may improve their defined-contribution plan, but never get around to implementing them.
It must certainly be acknowledged that what is ideal for one plan may not be the case for another. Plans may be too small to benefit from unbundling or custom target-date funds, they may not need automated solutions, or they may have a sophisticated participant demographic that is fully capable of navigating greater investment choice.