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Alternative assets in DC plans require effective operational strategy, says Northern Trust


A new white paper, Adding Alternatives to DC Plans, from Northern Trust explores the operational and plan structure options available to plan sponsors wishing to include alternative assets in their defined contribution (DC) plans. 

As plan sponsors search for ways to find value while adding diversification among asset classes in their DC plans, many have considered offering alternative assets as an investment option. 

Alternative assets provide the benefits of diversification and low correlation to traditional asset class performance. However, concerns around the scalability, liquidity, and valuation needs of DC plans have inhibited their use as a viable investment option.

The paper explores three possible solutions – target date funds, combining defined benefit and DC assets into a unitised structure, and indexation..

“Northern Trust focuses on working with clients to help them find the best solutions for their retirement plans,” says Pete Cherecwich (pictured), Head of Corporate & Institutional Services in the Americas at Northern Trust. “The key to increasing the mix of options plan sponsors offer is having a well-defined operational strategy that focuses on the needs of the plan participants.”

"As interest in including alternatives has increased, we are frequently asked by clients what the best methods are to deal with liquidity and valuation challenges,” says Tom Lauer, Defined Contribution Asset Servicing Consultant at Northern Trust. “We tell our clients that there are ways to structure their plans that allow them to take advantage of alternative assets. For example, some clients find it appropriate to integrate defined benefit and defined contribution plan assets in order to leverage scale and provide participants with access to alternatives.”

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