Data & Research October 28, 2011

401(k) Participant Behavior Remains Steady

The Investment Company Institute (ICI) analyzed 401(k) participants' level of savings, withdrawal, and loan activity during the first half of 2011 and found it to be comparable to the first half of 2010.
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ICI examined 401(k) participants’ withdrawal and contribution actions in the study, Defined Contribution Plan Participants’ Activities, First Half 2011. It found that a commitment to contribution activity in the first half of 2011 continued at the high rate, as was the case in the first half of 2010. Only 1.6% of DC plan participants stopped contributing in the first half of 2011, compared with 1.7%  in the same period in 2010.

DC plan withdrawal activity during the first half of 2011 was in line with the prior year’s first half activity; participants generally did not make withdrawals. Just over two percent of DC plan participants took withdrawals in the first half of 2011, which was the same in the first half of 2010. Only 1.1% took hardship withdrawals, compared to 0.9% in the first half of 2010.

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Loan activity edged up slightly by the end of June 2011, a pattern of activity that also was observed in the wake of the bear market and recession earlier in the decade. The data found that at the end of June 2011, 18.3% of DC plan participants had loans outstanding, compared with 18.2% at year-end 2010.

Most DC plan participants stayed the course in their asset allocations in the first half of 2011, despite fluctuating levels of stock values. In the first half of 2011, 6.4% of DC plan participants changed the asset allocation of their account balances and 6% changed the asset allocation of their contributions.

ICI has been tracking participant activity through recordkeeper surveys since 2008. This update reports results from ICI’s survey of a cross section of recordkeeping firms representing a broad range of DC plans. Visit ICI’s 401(k) resource page for more information.

Compliance October 27, 2011

SEC Addresses Concerns about Participant-Level Fee Disclosure

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA)  has released a Securities and Exchange Commission letter regarding EBSA’s participant-level fee disclosure regulation.
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The SEC letter states that information required by and that complies with the fee disclosure regulation that is provided by a plan administrator, or designee, to plan participants, or beneficiaries will be treated as a communication that satisfies the requirements of Rule 482.  The letter’s intent is to resolve concerns about potential differences between the department’s participant disclosure requirements and the SEC rules on advertising that may apply to plan investment options.  

“This no-action letter is significant for many reasons, but primarily because it will help 401(k) plans and service providers understand what is expected of them under the Employee Retirement Income Security Act and the advertising rules under securities law,” said Phyllis C. Borzi, EBSA Assistant Secretary. “This ultimately will reduce the cost of regulatory compliance for these plans, which will benefit America’s workers. This letter exemplifies the close and sustained coordination between our agency and the SEC, not only on this letter, but on many other matters affecting retirement plans and their financial service providers.”  

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On October 20, 2010, EBSA published the participant-level fee disclosure regulation (see “EBSA Releases Final Participant Fee Disclosure Rule“). It requires many retirement savings plans to disclose information about the plan’s investment choices. This includes fee and performance information, which must be provided to participants and beneficiaries in cases where they have the ability to direct the investment of their individual accounts. Most plans will be required to furnish the first set of disclosures under this regulation by May 31, 2012.  

EBSA and SEC staff have been coordinating on the no-action letter since pre-publication of the final rule in 2010 to address concerns raised by plan representatives and their financial service providers regarding their obligations under ERISA and Rule 482.   

EBSA’s request and the SEC response can be viewed at http://www.dol.gov/ebsa. 

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