Data & Research September 23, 2009

Automatic Enrollment, Target-Date Funds Still Hot Topics

Nearly half (47%) of employers are now automatically enrolling participants into a retirement plan and another third are seriously considering it, a new survey found.

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Not only that, but a Watson Wyatt news release about its poll said the number of companies using lifecycle or target-date funds as their default investment option has increased from 38% in 2006 to 62% currently.

Plan sponsors that auto-enroll their employees use a median initial contribution rate of 3%, with a range from 1% to 7%. Fifty-one percent of the plan sponsors that auto-enroll also have auto-deferral increases; the final contribution rate is between 3% and 20%, with a median of 6%.

“Employees need to participate more effectively in their company defined contribution plan as this is increasingly the primary vehicle they use to save for retirement,” said Chris DeMeo, senior investment consultant at Watson Wyatt. “Taking an interest and actively participating in their plans will allow employees to make more informed decisions and develop investment strategies that take into account their goals and risk profiles.”

Stable Value as a Default Option?

According to Watson Wyatt, 96% of responding companies have a default investment option. More than 10% still offer stable value and money market funds as their default (see “Prudential Calls for Stable Value To Be Included as QDIAs” http://www.planadviser.com/Prudential_Calls_for_Stable_Value_To_Be_Included_as_QDIAs.aspx), despite Department of Labor (DOL) regulations issued in 2007 that stated that these options would not be given fiduciary protection.

Other findings of the study include:

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  • Having 10 to 14 investment fund options is most common, but 11% of surveyed employers offer 25 or more.
  • Thirty-eight percent of employers offer company stock as an investment option.
  • Investment fees vary considerably. Most funds (57%) have an average investment fund expense between 0.50% and 0.84%. Larger DC plans tend to pay lower investment fund fees compared with smaller DC plans. Twenty-one percent of the DC plans with less than $100 million in assets have an average investment fund expense of 0.85% to 1.24%, while only 3% of DC plans with $1 billion or more in assets have an average investment fund expense in that range.
  • Twenty-two percent of plans saw a decrease in recordkeeping fee rates from 2007 to 2008, while 31% of plans with more than $1 billion in assets saw a decrease.

Watson Wyatt's survey was conducted in March and April, and includes responses from 149 mainly large companies, representing a total of more than 2 million employees across a broad range of industry sectors.

More information is available at www.watsonwyatt.com/dctrends.


Products September 23, 2009

Hartford Unveils Fixed-Income Education Materials

The Hartford has released a new package of educational materials designed to help advisers teach clients about the finer points of fixed-income diversification.

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A Hartford news release said the materials, which include a brochure, “Managing Risk through Fixed Income Diversification,” can help clients and advisers spot any asset allocation holes in the client’s fixed-income portfolio.

The brochure summarizes four concerns that fixed-income investors face—credit risk, interest-rate risk, inflation risk, and income generation—and the mutual funds that address each concern.

 Other elements of the campaign include a new white paper from Hartford Investment Management, “Fixed Income Diversification: All Bonds Are Not Created Equal,” as well as a Webcast about fixed-income diversification and fund brochures and fact sheets, client seminars, a fixed-income table of investment returns, wholesaler education and training, and portfolio manager podcasts.

“We believe our commitment and unique approach to fixed-income diversification creates an attractive way for advisers to approach the topic with their clients and help them meet their goals,” said Keith Sloane, senior vice president of The Hartford Mutual Funds. “The materials developed for this campaign can help advisers select appropriate solutions based on their clients’ risk tolerance and financial goals.”

The new tools were announced along with a Hartford survey that found many respondents didn’t seem to quite understand their fixed-income holdings. Furthermore, more than half of survey respondents reported that their advisers had never talked to them about holding different types of bonds in their portfolio, or they weren’t sure if they had discussed it (see “Investors Need Adviser Help to Navigate”).
 

The materials are available to financial advisers and brokers registered at www.hartfordmutualfunds.com.

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