Morningstar Launches New Research Center to Help Improve the US Retirement System

The Workplace Solutions group within Morningstar Investment Management LLC, a subsidiary of Morningstar, Inc., a leading provider of independent investment research, launched the Morningstar Center for Retirement and Policy Studies. The Center will provide the industry with unbiased, actionable data and insight for decision-makers seeking to improve retirement plans and outcomes for retirement savers. Today, the Center released its inaugural report, “Retirement Plan Landscape Report,” which is designed to help the industry better gauge the health of the U.S. retirement system.

“There is a lot of great research out there, but some of it lacks in transparency and doesn’t dive deep enough into areas like plan investment holdings, plan quality, and participants costs. We want to change that,” said Aron Szapiro, head of retirement studies and public policy at Morningstar, Inc./Morningstar Investment Management LLC. “By using Morningstar’s independent data and capabilities, we can shed light on these areas and bring clarity around the true state of the U.S. retirement system.”

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The Center’s primary research team includes Szapiro as well as Jack VanDerhei, director of retirement studies for Morningstar Investment Management LLC, and Lia Mitchell, senior analyst of policy research for Morningstar, Inc. VanDerhei joined Morningstar Investment Management LLC on March 1, 2022 and will be responsible for modeling the impact policy changes and proposals might have on U.S. retirement preparedness, as well as the effects of plan sponsors’ decisions on participants. He was previously research director at the Employee Benefit Research Institute.

“It’s an honor to join Morningstar and be a part of an organization that is known for its independence, investor-first focus, and overall commitment toward improving the retirement space. With the opening of the Center, it’s a terrific opportunity to try to expand access to, and participation in, the retirement system by helping more Americans save for the future they want,” said VanDerhei.

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Morningstar’s “Retirement Plan Landscape Report” explores four aspects of the U.S. retirement system, including: trends across coverage, assets, and numbers of defined-contribution plans; costs to workers and retirees within these plans, as well as their investments; the kinds of investments held by these plans; and the continued role of defined-benefit plans for today’s retirees. Key takeaways include:

• The amount of money flowing out of defined-contribution plans—$4.61 trillion from 2011 to 2020—is alarming. These constant outflows, likely due mostly to rollovers and cash-outs, reduce plan assets. More assets in the defined-contribution system would help more sponsors gain the leverage to demand lower fees from asset managers and drive down costs for end investors.
• The broad divergence of defined-contribution plan costs should also be of note to the industry at large. Some people who participate in small plans pay around double the cost to invest as participants at larger plans. This is an issue industry leaders and policymakers must address because these differences in fees can add up, leaving participants with fewer assets at retirement and less ability to achieve their retirement goals.
• Plan sponsors appear to have shied away from considering environmental, social and governance (ESG) information and analysis, in part because of regulatory uncertainty. In doing so, sponsors have left the U.S. defined-contribution system in the aggregate tilted toward investments with more ESG risk—which is the degree to which companies fail to manage ESG risks, potentially imperiling their long-term economic value. Plan sponsors may wish to reexamine their investment choices using an ESG lens.

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