DC Plan Sponsors Focused on Compliance in 2012

Callan’s “2013 DC Trends Survey” indicates that in 2012, defined contribution (DC) plan sponsors spent their time on compliance matters.

Plan sponsors also say compliance will be their top area of focus over the next year.  

Eighty-four percent of plan sponsors took steps to ensure that their plans are Employee Retirement Income Security Act (ERISA) section 404(c) compliant. The percentage of plans that did not know whether their plan is 404(c) compliant or not declined relative to prior years.   

The proportion of DC plan sponsors that reviewed their plan’s investment policy statement (IPS) in the past year rose to 63% in 2012 from 55% in 2011. More plan sponsors have a written plan fee payment policy in place (41%) than in 2011 (38%), either as part of their IPS or as a separate document.  

Compliance with required Department of Labor (DOL) disclosures ranked third in the list of plan sponsors’ areas of focus surrounding plan fees for 2013, after ensuring that fees are reasonable, and sufficiently monitoring and documenting plan fees.


Plan sponsors’ greatest challenge in complying with the DOL’s plan sponsor fee disclosure regulation is “understanding the requirements,” followed by “knowing what appropriate actions to take relating to the disclosures.” Many plan sponsors have not had any issues with the DOL’s required participant disclosures, and “none” ranked highly on the list of compliance challenges. Some sponsors noted that “all items are performed by recordkeeper,” meaning they believe they have effectively delegated this responsibility to their vendor.  

More than four in 10 plans that use revenue sharing to offset administrative expenses limit their disclosures about these offsets to what is required under ERISA 404(a)(5). However, 18% of plan sponsors do not know how revenue sharing is disclosed.  

Plan sponsors range widely in how they are implementing the DOL’s requirement to show participants a “broad-based securities market” benchmark in disclosures. The most common primary target-date benchmark in disclosures is a market index, such as the S&P 500, DJIA, or MSCI, followed by a third-party target-date index, such as Morningstar Lifetime Allocation Indexes, S&P Target Date Index, or Dow Jones Target Date Indices. Nearly 14% of plan sponsors are not sure what benchmark is used in participant disclosures.  

Most plans’ administration expenses are paid by participants, and are often at least partially paid through revenue sharing. However, it is rare that all of the funds in the lineup pay revenue sharing (2%). Most commonly, 51% to 99% of the plan’s funds pay revenue sharing. The proportion of plan sponsors that do not know how many of their funds pay revenue sharing declined materially in the past year—from one in five in 2011 to under 7% in 2012. More than half of plans with revenue sharing have an ERISA expense reimbursement account, up from just over one-third in 2011 and around one-quarter of plans in 2009.

Automatic Features  

Prevalence of automatic enrollment continues to hover at around 50% of plans, as it has for the past few years. Adoption of automatic contribution escalation continues to slightly lag automatic enrollment, with 43% of plans allowing participants to automatically increase deferral levels.  

More than half of plan sponsors that offer target-date or target-risk funds used the proprietary mutual fund or collective trust of their recordkeeper in 2012 (59%), and a slightly lower percentage (54%) intend to do so in 2013. The prevalence of passively managed target-date funds now marginally surpasses that of actively managed options (38% and 37%, respectively). Nearly two-thirds of plans (64%) offer target-date funds with some amount of indexing in the underlying fund allocation. In contrast, all-passive fund lineups are rare within DC plans (1%).  


Inflation ranks highest on plan sponsors’ list of concerns, followed closely by a double-dip recession. In 2012, 30% of plans that expanded their fund lineup added inflation-protection type funds, such as real return, real estate investment trusts (REITs) or treasury inflation-protected securities (TIPS). One in 10 plan sponsors surveyed that expanded their fund lineup added alternatives. An additional 14% added stand-alone emerging markets equity funds.  

Most plan sponsors (74%) do not offer income-for-life solutions within their DC plan. Prevalence of in-plan guaranteed income-for-life solutions remains low at 7%, but increased materially from 1% in 2011. Nearly 14% of plan sponsors are somewhat or very likely to offer an in-plan guaranteed income-for-life solution in 2013.  

Reasons plan sponsors give for being unlikely to offer an in-plan guaranteed income-for-life product in the near future include concerns about fiduciary implications, and that such products are “unnecessary or not a priority.” However, more than half of plan sponsors provide a retirement income projection showing plan participants how their current balance may translate into monthly income in retirement.