Fees, governance top concerns for DC plan sponsors
Sponsors' plan priorities have shifted as a result of the pandemic.
Callan’s 14th annual DC plan sponsor survey indicates sponsors will have an increased focus on governance in 2021, particularly around fees. Seventy-one percent of plan sponsors are at least somewhat likely to conduct a fee study in 2021, up from 56% in 2020, and DC plan sponsors cited governance and process as a top area of fiduciary focus for this year.
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Reviewing plan fees was a top fiduciary action plan for 2021, the survey found, with most respondents noting that they are at least somewhat likely to look at other fee types, including managed account service fees and indirect revenue.
Evaluating their plan’s investment structure was another top area of focus, though Callan found that “the events of 2020 seem to have slowed the pace of change in investment structures.” The survey found only 16% of sponsors made changes to their investment structure last year, compared to a full quarter in 2019. That percentage climbed to only 19% of sponsors who anticipate making changes to their investment structure this year.
The survey found a significant increase in sponsors who are inviting members of their legal teams to committee meetings. Fifty-six percent of sponsors said members of internal legal counsel teams have attended committee meetings, up from just 11% three years ago. The presence of external legal counsel increased slightly from 21% to 25%.
There was also an increase in committee meetings in general, up 20% in 2020. Much of that, of course, was virtual, as 86% of sponsors said they were having virtual meetings, while in-person meetings fell by 62%.
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Respondents noted that their plan priorities have changed as a result of the pandemic. The survey found 69% of sponsors are focusing on employees immediate financial needs, while just 31% said concern about retirement readiness was their biggest priority. Over half of sponsors have increased communications with employees. Thirty-five percent have changed how they provide education, counseling and planning, and a third are reviewing participant behaviors as well as cyber and information security procedures.
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Some other findings from the report:
- Roth deferrals have been widely adopted, with 79% offering these enhanced saving features, up from 37% in 2010.
- Almost half of plans offer managed accounts, with the largest plans being most likely to have them in their lineup (87%).
- Less than a quarter of respondents use their record keepers target date option, and that is expected to fall too even more to 21% in 2021. Additionally, 15% of sponsors say they will change their TDF manager.
- Although about 70% of employers offer a financial wellness program, respondents ranked their effectiveness at just 6.4 out of 10 on average. “The programs that had the highest ratings were those that have been in place between three and six years, suggesting that programs designed more recently with sufficient time to implement and socialize the programs are the most effective,“ according to the report.
- There’s very little interest in joining a MEP or PEP as of yet, with roughly three-quarters of sponsors across all plan sizes saying it was “very unlikely” for them to do so, fearing loss of control over plan administration. However, roughly one in 10 said they were unsure and awaiting further guidance before deciding.
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