Defined contribution plan sponsors are taking measures to revive their plans after a tumultuous period.
According to investment consulting firm Callan Associates, of the plan sponsors that reduced or eliminated company contributions to their plan during the past two years (nearly 20 percent), 58 percent intend to reinstate them over the next 12 months. Nearly one-third had restored them partially or completely–and 75 percent of those reinstated company contributions at full prior levels. Further, for 2011, none of the plan sponsors surveyed advised that they will reduce or eliminate the company match.
Plan sponsors are also focused on more automatic features. Adoption of automatic enrollment increased from 43.9 percent in 2009 to 51.3 percent in 2010.
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Similarly, automatic contribution escalation soared from 33.8 percent in 2009 to 46.2 percent in 2010. The use of unbundled structures is on the rise: though partially bundled plans still dominate at 49.4 percent, fully unbundled plans increased from 29.9 percent in 2009 to 34.9 percent in 2010. The unbundling trend may continue as large plan sponsors seek to reduce participant costs, spread fees more equitably and increase investment flexibility.
"The number of positive trends in this year's data is encouraging," said Lori Lucas, defined contribution practice leader at Callan Associates. "After spending a significant amount of time reacting to market conditions, the faltering economy, and grappling with new legislation and regulations, plan sponsors are returning their focus to improving their DC plans."
Another key area of focus for plan sponsors revolves around plan fees. Their highest priorities in order are to ensure that fees are: reasonable, well monitored and documented, and are clearly communicated to participants. Equitable fee payments ranked fourth in the survey. Nearly 85 percent of sponsors have calculated their plan fees within the past 12 months and 84.1 percent of those benchmarked their DC plan fees.
"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," said Lucas.
Callan's survey found that 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."
Other key findings:
- The use of investment consultants by plan sponsors has jumped from 64.6 percent in 2009 to 71.8 percent in 2010;
- Nearly 50 percent of DC plans have Roth designated accounts – up from 27.8 percent in 2008;
- Approximately 70 percent of plans offer target date funds (TDFs) as their default investment fund for non-participant directed monies, but growth in TDFs prevalence is stagnant.
Callan conducted the 2011 Defined Contribution Trends Survey: Positioning the DC Plan for the Future in October 2010. The majority of the 90 U.S. companies surveyed, 76.2 percent, offer 401(k) plans and one in ten sponsors a 457 plan. Nearly 80 percent of these plans have upwards of $100 million in assets and 46 percent more than $1 billion.
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