Defined contribution plan sponsors expect to focus more on plan fees this year, according to a new survey by Callan Associates.
Plan sponsors’ highest priorities, in order, are to ensure that fees are reasonable, well monitored and documented, and clearly communicated to participants.
“Equitable fee payments” ranked fourth in the survey. "In light of the participant fee disclosure regulation that goes into effect in late 2011, and the greater awareness about DC fees by plan participants that may result, it will be interesting to see if equitable fee payments rise in importance this year," says Lori Lucas, DC practice leader at Callan.
Nearly 85% of plan sponsors have calculated their plan fees within the past 12 months and 84% of those benchmarked their DC plan fees.
The survey found that DC plan sponsors face several possible challenges during the year, with inflation ranking high among their concerns. As a result, real return and TIPS funds were the most commonly added options in 2010 and will likely keep that spot in 2011.
Conversely, few plan sponsors are eager to offer income-for-life products. "Many DC plan sponsors want to help their participants manage income in retirement," says Lucas. "But until plan sponsors are comfortable about the fiduciary implications of offering these types of guaranteed products, there will be little traction for such offerings."
Prospects for company contributions to DC plans are getting better, the survey found: Of the plan sponsors that reduced or eliminated company contributions to their plans during the past two years (nearly 20%), 58% said they intend to reinstate them over the next 12 months.
Nearly one-third had restored them partially or completely — and 75% of those reinstated company contributions at full prior levels. None of the plan sponsors surveyed said that they plan to reduce or eliminate their company match.
According to Callan, plan sponsors are boosting their use of automatic features. Adoption of automatic enrollment increased from 43.9% in 2009 to 51.3% in 2010. Similarly, automatic contribution escalation soared from 33.8% in 2009 to 46.2% in 2010.
The use of unbundled structures is on the rise — although partially bundled plans still dominate at 49.4%, fully unbundled plans increased from 29.9% in 2009 to 34.9% in 2010. The unbundling trend may continue as large plan sponsors seek to reduce participant costs, spread fees more equitably and increase investment flexibility.
Other key findings:
- the use of investment consultants by plan sponsors jumped from 64.6% in 2009 to 71.8% in 2010
- nearly 50% of DC plans now offer Roth accounts — up from 27.8% in 2008
- approximately 70% of plans offer target date funds as their default investment fund for non-participant directed monies, but growth in TDFs prevalence is stagnant
The Callan survey, "2011 Defined Contribution Trends Survey: Positioning the DC Plan for the Future," was conducted in October 2010. Of the 90 U.S. companies surveyed, 76% offer 401(k) plans and 10% sponsor Section 457 plans. Nearly 80% of the plans have more than $100 million in assets; 46% have more than $1 billion.
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