Institutionally priced mutual funds are gaining traction among large plan sponsors, demonstrated by the growth in R6 mutual fund share classes, or share classes designed specifically for large and mega DC plans, according to new findings by New York-based research shop Strategic Insight.
As of March 2012, R6 share classes held $64 billion in assets. Collective investment funds, which can be less expensive than ’40 Act mutual funds, are benefiting from improvements in reporting driven by participant fee disclosure regulations.
“Expanded fee disclosure will increase the scrutiny of plan costs and influence product choices in the large plan market,” stated Bridget Bearden, research analyst at Strategic Insight and author of Addressing the Large Plan Markets.
The report also found that large retirement plans make up a significant majority of defined contribution assets, Specifically, plans with over $100 million in assets account for 68%, or $3 trillion, of DC assets (including 401(k), 403(b), 457, profit sharing and other similar plans) as of year-end 2011. However, the report also found that fewer than 1% of all DC plans have more than $100 million assets.
“The large DC plan market has long been highly concentrated. This means that fund management firms seeking distribution opportunities with this part of the market must take an ‘institutional’ approach,” said Bearden.