The GS Absolute Return Tracker Fund (GJRTX), which seeks to replicate the returns of the broader hedge fund indices to provide long-term growth of capital, is imbedded in the Retirement Portfolio Completion Fund and offered as a stand-alone product. GSAM’s other 401(k) offerings include the GS Strategic Income Fund (GSZIX), which is a nontraditional bond fund, and the GS Multi-Manager Alternatives Fund (GSMMX).

When helping advisors develop custom target-date solutions, GSAM encourages them to consider not only the participants’ age and risk profiles but also their salaries, plan participation rates, cash flows coming from the plan and whether the company also offers a DB plan.

Cost-Efficiency And Customization
Sage Advisory Services Ltd. Co., an Austin, Texas-based independent investment management firm with $10.5 billion of assets under management, created target-based products for separately managed accounts and also wanted to share its broad range of fixed-income and tactical ETF strategies with the 401(k) community. But inadequate industry technology and the costs and requirements associated with mutual funds were big barriers to entry, says Bob Smith, president and chief investment officer of Sage. So the firm recently tried another door: collective investment funds.

Also known as collective trusts, CIFs can be priced and traded daily, elected as qualified default investment alternatives (QDIAs), and put on multiple platforms. In January, Sage launched a series of style-box and target-date CIFs. “This is pure ETF, all the time,” says Smith. It’s also “easy on the eyes,” he says, since Sage typically has just six to 10 ETFs in each fund. Most of the ETFs are passive and based on indices that have track records of 10, 15 or 20 years.

Sage, which has full discretion on these assets, trades the ETFs when it thinks it’s necessary. Houston-based Hand Benefits & Trust Co., a BPAS (Benefit Plans Administrative Services Inc.) company, helped Sage establish the funds and serves as trustee and transfer agent.

David Hand, CEO of HB&T, says the fees for running a collective trust are often 30% to 40% less than for a mutual fund. A collective trust doesn’t require a prospectus or tax accounting, and it costs about $5,000 to audit, versus $100,000 for a mutual fund, he says.

Hand, who says approximately $3 trillion of the retirement plan market’s total $16 trillion in assets is in collective trusts, expects to see half of retirement plan assets there within the next 10 years as advisors seek to add value. “I don’t see anything stopping it,” he says. “Everything is about fees and being a fiduciary to a plan—and a mutual fund is not a fiduciary to a plan.”

Global asset manager Russell Investments, which launched its first target-date funds in 2004, expanded its DC team last year and recently added Adaptive Retirement Accounts (ARAs). It’s taking them live with a number of clients this spring. Unlike a target-date fund, which is a pooled vehicle based just on age, an ARA is an individual account that establishes a custom glide path for each participant based on his or her age, account balance, deferral rate, gender and salary.

“Target-date funds have done a solid job of improving participants’ diversification within plans, and this product builds upon their strength,” says Andrew Scherer, director of defined contribution for Russell’s U.S. advisor-sold business. “We really think it’s cutting edge and at the forefront of where the industry is going,” he says. “What we’re hearing from plan sponsors and their advisors today is that they want highly controlled, highly automated, individualized options for their plan participants.”

ARAs, which plan sponsors can select as QDIAs, don’t require participant interaction. Instead, Russell can extract individuals’ data using technology linked to plan sponsors’ record-keeping platforms. Fees are comparable to those of target-date mutual funds since they are dependent on the underlying assets. Russell also offers multi-managed asset class funds and provides a lot of thought leadership for DC plans, says Scherer.

Meanwhile, 401(k) service provider Schwab Retirement Plan Services Inc. has seen some early interest in its all-ETF 401(k) platform, the industry’s first, which it launched in February, says Steve Anderson, head of Schwab Retirement Plan Services. “Number one, it’s driving costs down to the lowest possible levels,” he says. It also provides transparency, timely trading and greater flexibility in terms of available asset classes.