Research

DATA & RESEARCH | PLANADVISER May 2010

2009 Plan Size Comparisons - Size Matters

Benchmarking a plan against comparable ones gives you a true indicator of succe

By Alison Cooke Mintzer See Archive >

Benchmarking a single retirement plan to industry averages can be useful, but it also can be like comparing boutiques to supermalls; averages can be deceiving if you do not winnow out the differences attributable to plan size. For example, segmenting the results of PLANSPONSOR’s 2008 DC Survey into plan sizes finds, some things—such as participation rates (all sizes in the low to mid-70% range)—show negligible differences among plan size, but other data vary significantly.

No difference is more striking than the adoption of automatic enrollment. Overall, the feature enjoyed an uptick across all plan sizes (to 29.8%), but the numbers vary widely according to plan size. The percentage is notably higher (45% have adopted) at plans with more than $200 million in assets, but only about a third as prevalent among micro plans, those with less than $5 million in assets. Default investments for automatic enrollment also vary: While stable value and money market funds do not enjoy qualified default investment alternative protections, a full third of micro plans still use either as their plan default, nearly twice as often as small plans (those with up to $50 million in assets), and five times more likely than among the largest programs.

Participant eligibility is another point of variance: The majority (67.8%) of large plans allow employees to participate in the plan immediately upon hire but, in micro and small plans, that is not the case (17.2% and 28.0%, respectively). Particularly in micro plans, it is much more common to make employees wait six or more months to join (49.1%)—only 6.4% of large plans require that long.

Large and mid-size plans also were more likely to have an investment policy statement (IPS) (85.6% and 87.6%, respectively) than small (77.3%) and micro plans (51.3%). Micro plans were less likely to have an investment committee (only 55.5% did), while that is rare among other plans sizes (only 18% of small, 7.4% of mid-size, and 9.1% of large plans do not have a committee). Moreover, at least on a self-reported basis, the larger the plan, the more likely the plan sponsor is to be vigilant about monitoring compliance with that document.

When it comes to an understanding of plan expenses, one-quarter (25.7%) of micro plans admitted that they did not know the approximate average expense ratio of the plan investment options. Just 14.7% of small plans, and 7.9% and 7.3% of mid-size and large plans, respectively, said they did not know that expense ratio.

One area of consistency among plan sponsors of all sizes: the focus list of priorities when selecting a DC plan provider. Regardless of plan size, “quality of service to participants’ was ranked most important, followed by “quality of service to plan sponsor.’ However, after that, there are some differences among plan sizes: Both mid and large plans say “reasonableness of fees’ is third, while that criterion doesn’t appear in the top five priorities for the small and micro plans.

While some differences among plan sizes might be predictable, others are not. Regardless, this information can help you determine more accurately whether your clients’ plans are hitting the mark—and what prospects might be in need of your attention.—Ellie Behling

Importance of each item to you in selecting or evaluating a DC provider

 OverallMicroSmallMid Large
Quality of service to participants6.65 6.60 6.65 6.746.67
Quality of service to plan sponsor6.506.496.506.556.48
Investment performance6.38 6.49 6.40 6.29 6.09
Financial strength6.27 6.33 6.28 6.26 6.12
Variety of investment options6.17 6.21 6.21 6.20 5.91
Reasonableness of fees6.16 6.13 6.09 6.34 6.21
Provider's Web site6.10 6.05 6.09 6.216.15
Transparency of fees5.85 5.765.77 6.07 6.02
Market image/reputation5.76 5.76 5.77 5.78 5.71
Industry knowledge of account managers5.73 5.69 5.76 5.76 5.69
Industry knowledge of vendor's sales force5.41 5.52 5.45 5.30 5.18
Recognizable "brand name" funds 5.36 5.45 5.41 5.28 5.06

 

How often do you formally evaluate your DC provider?
 Overall MicroSmall Mid Large
Annually 29.0%35.2%30.0%18.8%20.2%
Every 1-3 years28.4%29.8%39.3%26.7%22.2%
Every 3-5 years22.8%14.9%23.3%31.6%33.9%
Every 5+ years10.8% 6.1% 10.4% 16.4% 18.3%
Never 9.1% 14.0%6.0% 6.5%5.4%

 

 

 

How often do you formally review costs/fees?
 OverallMicro Small Mid Large
Annually 71.4% 61.4% 76.3% 78.9% 76.9%
Every 1-3 years17.4%21.7%15.3%14.4% 14.9%
Every 3-5 years5.0%6.0%4.4% 3.8% 5.1%
Every 5+ years 1.7% 2.4% 1.1% 1.7% 1.3%
Never 4.6% 8.6% 3.0% 1.2% 1.8%


What is the participation rate in your DC plan among eligible employees?
 Overall Micro Small Mid Large
Average73.871.9 75.3 73.9 74.7
Median 80 78 80 80 80

 

When are employees eligible to participate in the plan?
 Overall Micro Small Mid Large
Immediately upon hire 33.1% 17.2% 28.0% 51.5% 67.8%
Within 3 months 25.3% 20.8% 29.4% 30.9% 21.6%
After 4 to 6 months 10.5% 12.9% 12.6% 5.6% 4.1%
After more than 6 months 31.2% 49.1% 30.1% 12.1% 6.4%


Do you use automatic enrollment?
 OverallMicroSmallMidLarge
Yes 29.8% 15.6%33.6%41.9% 45.4%
No 70.2% 84.4% 66.4% 58.1% 54.6%

 

What is the default investment for automatic enrollment?
 OverallMicroSmallMidLarge
Stable value fund/GIC 9.2% 15.8%11.0% 5.1% 5.1%
Target-date fund 44.3% 24.8% 38.8% 54.6% 58.3%
Risk-based lifecycle fund 14.1% 5.6% 17.3% 11.9% 16.4%
Company stock 0.2% 0.4% 0.4% 0.0% 0.0%
Balanced fund 15.6% 17.9% 15.9% 16.7% 12.5%
Managed account 5.0% 9.4% 4.2% 4.8%3.3%
Money market fund 5.7% 17.9% 5.3% 2.4% 0.9%
Other (please specify) 5.9%8.1% 7.1% 4.4% 3.6%

 

Have you implemented automatic deferral increases for participants?
 OverallMicroSmallMidLarge
Yes 13.6% 6.7% 12.6% 22.2% 25.4%
No86.4% 93.3% 87.4% 77.8% 74.6%

Does your company have an investment committee for the DC plan?

 OverallMicroSmallMidLarge
Yes (internal employees only) 55.6%35.8%63.5% 69.5%71.0%
Yes (includes non-employees) 15.8% 8.7% 18.5% 23.1% 19.9%
No investment committee for DC plan 28.6% 55.5% 18.0% 7.4% 9.1%

 

Do you have a written investment policy statement (IPS) for the DC plan?
 OverallMicroSmallMidLarge
Yes71.0%51.7% 77.3% 87.6%85.6%
No 29.0% 48.3% 22.7% 12.4% 14.4%

 

If so, how closely is compliance with the IPS monitored?
 OverallMicroSmallMidLarge
Very vigilant51.9%41.1%49.3%60.0%64.9%
Somewhat vigilant, rely on vendors42.6%49.0%45.2%37.1%33.1%
Not very vigilant4.7% 7.9% 4.8% 2.7% 1.8%
Not concerned0.8% 2.0% 0.7% 0.2% 0.2%

 

How many investment options are offered in your defined contribution plan?
 Overall Micro Small Mid Large
Average18.819.218.517.619.6
Median 1616171615

How often do you formally review the investment options?

 Overall Micro Small Mid Large
Quarterly 31.1% 11.8% 31.2% 54.3% 57.2%
Twice a year16.0%12.2% 20.6% 18.9% 12.0%
Annually 37.5% 49.1% 39.2% 20.7% 20.6%
Every 1-3 years8.3%14.0%5.3%4.1%6.0%
Every 3+ years 1.9%3.1% 1.4% 0.4% 1.8%
Never 3.3% 7.6% 0.9% 0.7% 0.7%
Other (please specify)1.6% 2.1% 1.4% 0.9% 1.8%

 

What is the approximate average expense ratio of all the plan investment options?

 Overall Micro Small Mid Large
Less than .25% (<25 bps)13.3%16.8%10.4%10.4%15.3%
.25-.50% (25-50 bps)18.9%14.8% 18.6% 19.1% 28.6%
.51-.75% (51-75 bps) 17.4% 9.2% 15.7% 27.4% 29.8%
.76%-1% (76-100 bps) 21.1% 15.6% 25.0% 29.1% 16.5%
1%-1.5% (101-150 bps)11.4% 15.2% 14.3% 5.6% 2.0%
1.6%-2.0% (160-200 bps) 1.2%2.2% 0.8% 0.5% 0.5%
2.1%-2.5% (210-250 bps) 0.4% 0.5% 0.6% 0.0% 0.0%
More than 2.5% (More than 250 bps) 0.0% 0.0% 0.0% 0.0% 0.0%
Don't know 16.3% 25.7% 14.7% 7.9% 7.3%

 

 

Which investment vehicles are you currently using for your DC plan?
 Overall Micro Small Mid Large
Mutual funds88.2% 85.2% 88.9% 93.8% 88.6%
Separate account 15.0% 11.9% 14.7% 12.0% 25.8%
Managed account 23.6% 23.6% 24.9% 21.0% 23.0%
Commingled pool 6.2% 4.4% 2.8% 6.4% 18.2%
Collective trust9.7% 2.5%6.6% 18.0% 25.1%
Other 3.9% 2.3% 3.2% 5.5% 7.6%

 

Do you currently offer any of the following types of investment options in your plan?

      
Employer stock 9.5% 1.2% 3.8% 14.6% 36.2%
Self-directed brokerage 15.2% 6.2% 13.4% 26.4% 28.8%
Real estate 13.3% 11.5% 15.9% 14.0% 10.9%
Alternative investments* 1.8% 1.9% 1.6% 1.5% 2.2%
Target-date funds 39.9% 24.3% 42.2% 52.0% 58.4%
Risk-based lifestyle funds 22.2% 16.6% 25.5% 24.8% 24.5%
Managed accounts 20.7% 19.5% 21.8% 18.4% 23.0%
ETFs 1.0% 1.2% 0.8% 0.9%0.9%
None of the above 29.5% 49.4% 24.8% 14.7% 9.3%
*Hedge funds, venture capital, private equity

 

What types of asset allocation/lifestyle/lifecycle funds are available?
 OverallMicroSmall Mid Large
Target-date fundsfrom one firm45.2%31.3%46.3%52.4%57.7%
Target-date fundsfrom multiple firms 21.7% 18.8% 22.8% 26.8% 20.1%
Don't know 34.4% 50.7% 32.3% 22.8% 23.9%

 

Do you believe that your recordkeeper is offering you the most appropriate target-date funds available?
 OverallMicroSmall Mid Large
Yes 58.2% 49.3% 60.2% 63.5% 62.6%
No 3.9% 2.7% 3.1% 5.5% 5.6%
Not sure37.9% 48.0% 36.7% 31.0% 31.9%

When adopting a target-date fund series, do you evaluate each individual fund?

 OverallMicroSmallMidLarge
Yes60.5% 56.9%59.1% 64.4% 63.9%
No 39.5% 43.1% 40.9% 35.6% 36.1

 

Does your organization match the participant's contribution?

 OverallMicroSmallMidLarge
Yes72.8% 63.7% 77.0% 77.0% 76.8%
No 27.2% 36.3% 23.0% 23.0% 23.2%

 

 

 

If so, how much is the approximate maximum match?
 Overall Micro Small Mid Large
More than 100% of 6% of salary 5.4% 6.5% 4.4% 4.9% 6.0%
100% match on 6% of salary contributed 9.6% 9.1% 7.0% 11.2% 15.1%
Between 51%-99% of 6% of salary25.7% 19.9% 25.2% 27.1% 36.9%
50% match on 6% of salary contributed* 28.5% 29.4% 29.3% 29.7% 23.7%
Less than 50% of 6% of salary 30.8% 35.1% 34.1% 27.1% 18.2%
*effective 3%

How long before participants are 100% vested in the match?

 Overall Micro Small Mid Large
Immediately on enrollment 29.6% 25.7% 26.4% 36.9% 37.3%
6 months 0.9% 1.3% 0.8% 0.8% 0.4%
1 year 5.6% 5.6% 4.3% 6.0% 8.0%
2 years 3.3% 2.4% 2.7% 4.2% 5.7%
3 years 12.9% 9.1% 12.5% 15.2% 19.3%
4 years 4.0% 2.7% 4.7% 4.2% 4.4%
5 years 25.3% 28.5% 26.8% 21.3% 19.1%
After more than 5 years 18.5% 24.8% 21.7% 11.3% 5.8%

 

 


Does your plan use the services of a financial adviser?

 OverallMicroSmallMidLarge
Yes61.2% 65.5% 63.1% 55.3% 51.8%
No 38.8% 34.5% 36.9% 44.7% 48.2%

 

 

Is financial/investment advice offered to participants in your DC plan?
 OverallMicroSmallMidLarge
No 28.8% 25.2% 24.7% 36.9% 39.7%
Yes, through a financial planner/adviser 26.7% 35.9% 30.0% 14.6% 8.5%
Yes, through a third party9.5% 5.4% 6.8% 11.5% 23.8%
Yes, through our DC provider31.6% 30.4% 35.0% 34.3% 24.1%
Yes, through another source 3.3% 3.1% 3.6% 2.7% 3.8%

 

Are plan participants able to borrow against their 401(k) or make hardship withdrawals?
 OverallMicroSmall Mid Large
Yes, loan provision included 78.4% 70.5% 79.6% 86.6%87.6%
Yes, hardship withdrawal provision included74.4% 65.9% 75.8% 85.4% 82.4%
No37.9% 48.0% 36.7% 31.0% 31.9%

 

 

Methodology

In July and August 2008, approximately 35,136 survey questionnaires were sent to defined contribution (DC) plan sponsors from the PLANSPONSOR magazine database, as well as client lists supplied by DC providers; 5.973 total usable responses were received by the close of the survey on September 10, 2008. Market segments are defined as follows: micro (<$5MM), small ($5MM-$50MM), mid (>$50MM-$200MM), and large (>$200MM).

Illustration by Jonathon Rosen