Do women make better DC plan administrators?
Morningstar report finds signals of better plans are more likely among women-led plans.
Women represent an equal share of defined contribution plan administrators, which bodes well for plan participants. A white paper from Morningstar, “Wonder Women: Why Defined-Contribution Plans Benefit From Female Plan Administrators,” found that approximately 50% of DC plan administrators were women in 2017, up from 30% in 2000.
Women were more likely to demonstrate good plan governance, use automatic enrollment to increase participation, and offer a default investment option, according to the paper. These elements of plan design help improve participants’ chances of saving enough to retire.
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Automatic enrollment can help “get people better outcomes at retirement; the fact that they’re in the plan is certainly something that is a very big deal in affecting our outcomes,” Julie Varga, vice president of investment and product specialist at Morningstar, and one of the authors of the report, told BenefitsPro.
She added that good governance and default investments that help participants avoid selecting investments that aren’t appropriate for them also affect outcomes.
“We do feel these are incredibly important data and features for plans to have in order to be considered running a really effective plan,” she said.
Morningstar’s report is based on publicly available data from Form 5500s. Because gender isn’t an explicit field on 5500s, researchers guessed an administrator’s gender based on their first name. Using the Social Security Administration’s baby names dataset, Morningstar determined the Leslies, Pats and Terrys in the 5500 dataset resulted in 5.6% of administrators’ gender being undefined for the report’s purposes.
Save for a spike in 2009 when the probability of a male plan administrator jumped considerably, the likelihood that a plan’s administrator is a man has been steadily trending down for all plan sizes since 2000. As of 2017, the probability of a plan administrator being a man or a woman is roughly equal, Morningstar found. The smallest plans were more likely to be administered by a man, while the largest plans were more likely to be administered by a woman, according to the report.
To try to measure plan quality objectively, Morningstar looked for plans that were seeking ERISA 404(c) compliance, which absolves administrators of liability for participants’ decision making in their own plans.
“Complying with 404(c) is voluntary and is assumed to be a ‘signal’ for quality overall plan oversight (that is, fiduciary governance),” Morningstar wrote in the report. “Therefore, plans that note compliance with 404(c) are assumed to likely have better plan governance procedures than those without.”
Automatic enrollment was another indicator of plan quality, as well as the use of a default investment option for participants who didn’t want to make the decision on their own.
Related: Engagement is key to achieving good participation
Over 95% of plans adhere to 404(c) compliance, while about 89% offer a default investment and over 31% of plans use automatic enrollment, Morningstar found. The probability of 404(c) compliance fell 7.7% in 2017 for plans administered by men. The probability of automatic enrollment fell nearly 2.8% and use of a default investment by 6.8%, according to the report.
“The most important thing is to make sure that whoever the plan administrator is is considering these different features, and not just looking at investments or one piece of a defined contribution plan,” Varga said. Administrators need to look “at this full spectrum of everything they have available to implement within the plan.That’s pretty crucial in running effective plans.”
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