A couple weeks into the post-Bill Gross PIMCO era, plan sponsors may be interested in learning what other plan sponsors are doing with their PIMCO funds in their retirement plans. After taking an informal survey across a number of books of business, following is what I have learned:
Standing pat. The vast majority, likely more than 90% of all plan sponsors, are sticking with their PIMCO fund offerings in their retirement plans. And why not? There appears to be no evidence that indicates any other action makes sense at this point in time.
Offering replacement fund option(s). Very, very few plan sponsors have decided to roll out, on an emergency basis, additional investment options alongside existing PIMCO fund offerings. From a fiduciary standpoint, this doesn't appear to be a very smart thing to do. If you are a plan participant it would be hard not to interpret the new offering as the suggested option to transfer your money into. It would seem that the plan sponsor is indirectly providing investment advice by offering a second option.
Dumping their PIMCO funds. Less than 5% of all plan sponsors are dumping their PIMCO funds. This practice seems like a knee-jerk response to events. Or maybe even a trader's response. Neither of which are appropriate for a retirement plan. Whatever the motivation, it is a decision made on the basis of fear rather than data or reason. There will be plenty of time to replace the funds, if the data indicates that is necessary. Right now, the situation doesn't appear to warrant this type of action.
As time passes and additional information is shared, analyzed and digested, there are a couple items plan sponsors may wish to keep their eyes on:
Outflows from PIMCO funds. The markets appear to have estimated that PIMCO will lose around 20% of total assets. Losing anything less than that would appear to be a win for PIMCO while outflows greater than that could cause many to reappraise the situation.
Staff retention. To my knowledge, no one has followed Bill Gross to Janus. Nor has anyone else bailed out of the PIMCO ship and gone to another firm as a result of his departure. Should PIMCO lose significant staff, that would be another reason to reappraise the situation.
Time. The more time that passes without something negative happening to PIMCO, the better that would seem to be for PIMCO and their fund offerings. PIMCO is thought to be a very well managed organization with a deep portfolio management bench. There are few mutual fund families better equipped to weather a storm like this. Time would appear to be on PIMCO's side.
Make it a point to keep in weekly contact with your investment advisor for the next month or so. PIMCO isn't quite out of the woods yet.
Robert C. Lawton is President of Lawton Retirement Plan Consultants, LLC (lawtonrpc.com), an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at firstname.lastname@example.org or 414.828.4015.
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