Almost Half of Plans to Add Third-Party Advice in 2007

A new Hewitt Associates study of large US company retirement plans found that 43% offer, or are very likely to offer, third-party investment advisory services in the coming year.

Nearly one in five (19%) of the 146 companies surveyed offer or plan to offer an in-person investment adviser, while a quarter (24%) of companies offer or plan to offer managed accounts by the end of 2007, a Hewitt news release said.

The majority, 85%, offer or plan to offer target maturity/premixed lifestyle funds and more than half (54%) offer or plan to offer investment guidance, according to the Hewitt study.

The Hewitt study found that among the issues on employers’ 2007 agenda for pension change are:

  • an overall evaluation of retirement programs;
  • a continued focus on managing costs and risks;
  • enhanced retirement education and guidance; and
  • a continued emphasis on automating the 401(k) plan to help employees maximize the benefits of their retirement plans.

According to Hewitt’s study, half of companies (50%) say they plan to review their defined contribution fund operations, including fund expenses, revenue sharing and communication to employees, and almost half (48%) will conduct a review of fund offerings. Just 12%, however, said they were very likely to find ways to reduce the costs of funds they offer.


Automatic Provisions


Supplying more emphasis about the spread of auto plan features, more than half (58%) of the companies studied will automatically enroll employees into 401(k) plans by the end of the year, and just over a third (34%) already couple or plan to marry automatic enrollment with features automatically escalating the worker’s deferral. Further, almost 60% of companies (57%) already offer or are very likely to offer automatic rebalancing in 2007, up from 47% in 2006.

Almost one in five (19%) companies that already offer automatic enrollment say they plan to increase the default contribution rate, and more than two-fifths (43%) intend to change the default investment fund to a Qualified Default Investment Alternative (QDIA). Almost one-fifth (19%) plan to apply automatic enrollment to additional classifications of workers, and expand the feature beyond just new hires.


Plan Design


The Roth 401(k) plan still seems low on the totem pole of plan design features, as only about one in 10 companies (12%) added a Roth 401(k) in 2006, and 11% said they were very likely to do so in 2007.

Consistent with previous years, the majority of companies say they plan to leave alone their company match (78%). Eight percent say they plan to add/increase the company match, and only 1% plan to reduce or eliminate the company match.

More about the study is here.