DC plan sponsors focus on fees in 2020: Callan
Managing fees plays an important role in fiduciary strength, sponsors believe --69% are considering a switch to a lower fee class. But that's not all.
Retirement plan fees are sponsors’ top priority this year, according to Callan’s 13th annual “Defined Contribution Trends Survey.” The report, which surveyed 114 plan sponsors, found that for the fourth year in a row, respondents consider reviewing retirement plan fees to be the most important step they have taken in improving their fiduciary position.
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Callan found 89% of sponsors benchmark plan fees, and 69% are considering a switch to a lower fee class. Half say they plan to renegotiate investment manager fees, and 45% plan to renegotiate recordkeeper fees.
Despite sponsors’ concerns regarding plan fees, they’re not communicating those concerns to participants. Although communication was sponsors’ second top priority, much of that communication centers on financial wellness. Over one in five sponsors say financial wellness is the most important area of focus, more so than retirement readiness or cybersecurity.
Participation continues to be the most important signal of plan success. Since 2016, plan sponsors have looked at the participation rate to measure how well they’re doing; participants’ contribution rate is a secondary measure.
In spite of that, Callan believes auto-enrollment has peaked, even though about 30% of plans still don’t offer it. “Automatic enrollment has seemingly reached saturation, remaining at around seven in 10 plans for the past four years,” the authors wrote.
The main reason plan sponsors give for not offering auto-enrollment is that they simply don’t need it — over 40% said participation was high enough.
Sponsors’ interest in Roth features is on the rise. The share of plans offering Roth accounts has increased from 62% in 2015 to over 87% in 2019, according to the survey, and 3.5% are considering adding them.
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“The most common reason for waiting to add a Roth feature or not offering one was due to the complexity of a participant communication campaign to describe the feature,” according to the report.
Other key findings:
- Target date funds play a big role in DC plans, with custom funds gaining ground. The survey found 93% offer TDFs, while 17% offer a custom fund and 21% are considering adding a custom fund to their lineup.
- Thirty-six percent of plans replaced funds in their lineup in 2019 due to poor performance, up from 25% in 2018. Most of the funds replaced were from the global/global ex-U.S. category, “which could partially be a result of plan sponsors’ decision to switch from developed to more broad non-U.S. mandates (e.g., MSCI ACWI ex-USA),” according to the report.
- Almost all (95%) of plans offer advisory services, usually in the form of online advice or on-site seminars (the survey was fielded in September and October 2019).
- Asset leakage is a concern. Nearly 63% have an asset retention strategy, and 89% have taken steps to prevent leakage.
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