That was the bottom line of the latest “Defined Contribution Plan and Fee Survey” by NEPC, a DC consultant based in Cambridge, Massachusetts. The firm sponsored a Webinar today to discuss its latest findings. The data included more than 75 NEPC clients and prospects and more than 20 recordkeepers.
The survey found:
- The average participant balance fell from $79,747 in 2008 to $54,960 in 2009.
- Automatic enrollment take-up among NEPC respondents increased from 26% in 2005 to 48% in 2008.
- The number of options in a plan’s investment lineup stayed relatively steady in the last several years with 17 in 2007, 18 in 2008, and 20 in 2009.
- Rather than being marked by turmoil, NEPC Partner Ross Bremen said the NEPC survey data showed, during 2008, “a continued embrace of concepts detailed in the Pension Protection Act and the qualified default investment alternative regulations, such as automated design features and target-date funds.”
Lower Expense Ratios and Investment Choices
The NEPC data also showed that:
- The average weighted expense ratio grew from 57 bps in 2006 to 59 bps in 2008 and then fell back to 53 bps for 2009. Bremen pointed out that the decline was at least partly due to the flight from equities to fixed income during the worst of the downturn, with bond funds generally less expensive then equities.
- The estimated annual “per head” recordkeeping charge dropped from $118 in 2006 to $112 in 2008 and to $78 for 2009. Bremen said recordkeeping fees will likely regain their previous levels as an economic recovery takes hold, but that NEPC clients did not report attempts by recordkeeping providers to bump up fees thus far in 2009. Larger plans saw similar declines; $121 to $104 from 2008 to 2009.
- Target-date funds have widespread popularity with 85% of plans offering them and 76% of those using a target-date fund as a default. Some 55% indicated they selected the particular target-date funds because they were offered by the plan’s recordkeeping provider. Some 65% offering target-date funds did not believe participants understood the fund could still hold a significant equity market stake when a person is ready to retire.
- Sixty-two percent of respondents offer stable value funds, while 23% include money market offerings and 15% offer both.
- Despite widespread industry discussion about annuities and other income vehicles, 71% said they believe traditional asset classes are enough, while 23% offer annuities in the distribution process. “While interest in income solution products has grown significantly, few sponsors offer them today,” NEPC commented in a news release about the poll.
- Eighty-four percent of plans offer a non-mutual fund in their lineup.