2024 Defined Contribution Consultant Study offers insights and innovations that could apply in the Canadian space
T. Rowe Price’s 2024 Defined Contribution Consultant Study was published this month, offering a wide range of insights form the US DC space. Despite the gulfs of difference between the US and Canadian market, many of the insights and innovations highlighted in the study offer a glimpse into areas that Canadian DC plans may be considering more broadly. Those include an increased focus on retirement income, the rise of personalization in DC plans, as well as the ongoing role of member education.
Jessica Sclafani, Global Retirement Strategist at T. Rowe Price, unpacked the results of the survey and offered up some key insights for Canadian DC plan sponsors. She outlined some of the trends identified and highlighted areas where the Canadian DC space could begin to take a lead from its US counterparts.
“From a US plan perspective, we see increasing interest in how target date solutions can evolve, not only in terms of the underlying investment building blocks — in the case of the blend strategies, allocating to active and passive strategies — but also in how target dates could potentially evolve to incorporate personalization. So that's an increasing trend within the US. I don't see that in Canada today, but it could be something that, over the next decade, is exported into the Canadian DC market.”
Sclafani notes the increasing trend within asset allocation towards those “blend target date” strategies, which incorporate a mixture of passively and actively managed allocations. She attributes this popularity to a range of key reasons. There may be a growing need to hit a fee target, which blending can help with. There is also a push towards limiting tracking error for DC plan participants.
There is also a growing focus on retirement income identified in the survey. In the 2021 edition consultants and advisors said that 59 per cent of their DC plan sponsor clients didn’t have a stated opinion on retirement income. In the 2024 survey that number dropped to 19 per cent. Sclafani says that retirement income has been a key topic for the past decade in the US market. More recently, however, they have seen more DC plan sponsors seeking to fully understand the implementation aspects of an in-plan retirement income solution.
Where conversations had previously been more high-level and educational, Sclafani says that there is more of a sentiment shift towards implementation. Sclafani notes that plan sponsors in the US are motivated by their aging member populations. As a larger proportion of DC plan assets are owned by individuals approaching or in retirement Sclafani says there has been an increasing focus on repositioning the DC plan to respond to the needs of that pre-retiree and retiree population.
Personalization is one other key area the survey identified. Sclafani notes that there isn’t much of this trend in the Canadian space, but in the US there are more target date funds being developed that can provide a solution that works for most, but can also respond to individuals’ evolving risk/return tolerance and preference as they age. This kind of sophistication, she says, can be facilitated by advances in technology and result in target date funds that can reflect more than just someone’s retirement date.
Looking at the Canadian market, Sclafani notes that there are a number of trends identified by the survey that could help DC plan sponsors in Canada. Moreover, she sees many providers of solutions like these more sophisticated and personalized target date funds moving into the Canadian space. She argues that a view into the US market and the levels of competition and innovation found there could be instructive for the Canadian DC market.
“The target date market in Canada is fairly concentrated today, so I think greater choice, greater flexibility, is a positive. That would be a similar trajectory to what we've seen in the US, where today there are many choices for plan sponsors when they look for a target date solution for the DC plan,” Sclafani says. “Retirement income, or decumulation, is increasing in terms of interest as a discussion topic. I think Canada could potentially benefit from watching the US work through implementing in-plan retirement income solutions. Hopefully you'll be able to look at what worked and what didn't work in the US and start maybe a little bit further down the road.”
