The fourth quarter is a good time to take stock of how qualified retirement plans continue to evolve as a key component of the United States retirement system. Two primary sources of data are the PSCA Annual Survey, which will release its 60th volume later in the first quarter of 2018 and the PLANSPONSOR DC Survey which was released in late 2017 and is summarized below.
Perhaps the most noteworthy insight from the 2017 data is that there is no surprising trend or development. In fact, much of the data suggests that the utilization of DC Plans, best practices and plan features are stabilizing and maturing to offer much of what is in the best interests of plan participants and plan sponsors.
Governance Best Practices: Not Universal
The survey noted two key plan governance best practices that are underutilized among smaller plans. First, the use of investment committees to oversee a plan’s investment options is well established among plans with more that $50 million in assets. However, only 16.6% of plans with assets between $5 and $25 million have an established investment committee. Secondly, an Investment Policy Statement (IPS), is still not standard operating procedure for nearly one-third of plans surveyed. Given the increase in litigation moving from jumbo plans down market —implementing prudent plan governance best practices is important for plans of all sizes.
The 2017 PLANSPONSOR DC Survey included responses from more than 4,000 plan sponsors representing plans of all sizes, 36% of which were under $5 million and 21% were over $200 million in assets.
- Roth: Over 68% of plans today offer a Roth feature, representing an increase of over 16% over the past five years – an impressive gain for any DC plan feature.
- Loans: Most plans offer a loan feature with nearly 60% restricting participants to one loan at a time.
- Automatic Enrollment: This feature has become more of a rule than an exception to it, with well over 50% of plans with assets greater than $50 million offering both auto-enrollment and auto-escalation. These plans boast 21% higher average participation rate than plans with no auto features.
- Default Deferral Rate: The most common deferral rate is still 3% of salary. However, nearly 47% of plans with auto-enrollment have a 4% or higher default rate. This reflects positive momentum as the overall savings rate for participants is trending upward with the knowledge that 3% is just not enough to provide favorable outcomes
- Match: Over 74% of all plans offer a matching contribution on standard deferrals. Of note, most plans also match Catch-Up contributions and Roth contributions.
- Match Structure: Over 80% of matching formulas represented one of the following: (1) 100% of first 3% (34%), (2) 50% of first 6% at (30%), or (3) tiered, including 100% of first 3% and 50% of next 2% (19%). Over 38% of plans offered 100% immediate vesting of the match.
- Fees: Surprisingly, only a little over half of plan sponsors say they have calculated and benchmarked their actual plan administrative fees in the past 12 months. Also interesting given recent industry trends is who is actually paying recordkeeping fees, as well. The plan (via participant accounts) is paying in 49.9% of plans surveyed, while payment split between the plan and the employer is 14.2%; Fees paid outside of the plan by the employer in 35.8% of plans surveyed.
Plan Health versus Financial Wellness and Retirement Outcomes
The acceptance and implementation of plan features that encourage participation, increasing savings rates, debt management and limit the number of loans are together creating healthier DC plans. Yet, when asked if the employer has responsibility to improve employee financial wellness, only 41% of plan sponsors agree, with 34% neutral and 25% disagreeing. Furthermore, when asked if employees will reach retirement goals by age 65, only 16.8% agree, with 68.3% neutral and 14.9% disagreeing. Employee financial wellness and positive retirement outcomes are much-discussed topics in the media and among retirement service providers, however, this survey might suggest that plan sponsors have yet to reach a consensus and may be unsure or ambivalent about their role/responsibility or ability to have a positive impact on both. More time, research and data will be needed to learn how solving for these objectives will be addressed.
Source: PLANSPONSOR, November/December 2017, 2017 DC Survey: Plan Benchmaking.