DC Plans Could Improve Compliance, Design Best Practices

A survey of sponsors of many different types of defined contribution (DC) retirement plans finds not all are following plan design and compliance best practices.

The good news, according to the “2014 Retirement Survey Report” from retirement plan consulting firm Strategic Benefit Services (SBS), is roughly 83% of respondents said they were comfortable or very comfortable with their understanding of 408(b)(2) service provider fee disclosures. SBS notes that as part of their general fiduciary duty under the Employee Retirement Income Security Act (ERISA), DC plan sponsors should ensure that a plan’s fees and expenses are reasonable in light of the services that are received.

Approximately 20% of respondents said they reviewed fees on a quarterly basis; 11% semi-annually; and 49% on an annual basis. SBS suggests an effective way to benchmark fees is to gather data through a Request for Information (RFI) process, soliciting competitive information, given the specifics of the plan.

Also good, but not perfect, about 79% of survey participants said they have an investment committee. “Given a complex environment of regulatory scrutiny and fiduciary liability exposure, a committee specifically charged with investment oversight is a sound risk management strategy for plans and organizations of all types and sizes,” SBS says in its survey report.

Seventy-three percent of survey participants said they use an independent adviser for at least one of their retirement plans. According to SBS, “Best practices underscore the value of using an independent adviser with regard to developing, implementing, and overseeing a retirement plan. An experienced, independent adviser can offer valuable guidance and feedback to help ensure that a retirement plan is meeting the objectives of both the plan sponsor and participants. A plan fiduciary who lacks the expertise necessary to fulfill their fiduciary obligations must seek the advice of an expert. An independent adviser dedicated to retirement plans offers a broad range of services to assist a plan fiduciary.”

SBS noted one troubling observation: nearly 80% of survey participants said they were unsure of their independent adviser’s fiduciary status in connection with the organization’s primary retirement plan. “As independent advisers’ fiduciary status relates to the selection and monitoring of plan investments, best practices suggest it is prudent that an independent adviser be willing to affirm their fiduciary status in writing. This not only clearly acknowledges fiduciary status but also clarifies the specific nature of that responsibility to all involved,” SBS says.


Roughly 70% of survey respondents said they chose to comply with Section 404(c); approximately 30% said they did not elect to do so. According to SBS, “Those survey participants who said they did not elect to comply with Section 404(c) may be foregoing a valuable element of protection. Unless a participant-directed plan is a designated 404(c) plan, the plan fiduciaries may still be liable for losses incurred by participants.”

On a similar note, 80% of survey participants said they use a qualified default investment alternative (QDIA) in their retirement plans, with 69% saying their QDIA is target-date funds. SBS notes that the Pension Protection Act of 2006 provides for the use of a QDIA for participant-directed retirement plans. If the plan complies with the requirements of the regulation, the fiduciaries of the plan will not be liable for losses that result from investment in the QDIA.

Twenty-one percent of survey participants said they have never put their plan out to bid, with an additional 24% saying they were unsure how often they put their plan out to bid. By contrast, nearly 37% of survey participants said they put their plans out to bid every three to five years. “Putting plans out to bid allows plan sponsors to take advantage of changing conditions and overall marketplace competition. This ensures they are offering their employees a cost competitive plan and one where a recordkeeper uses current technology for both the plan and its participants,” SBS says.

Only 50% of respondents said their plan does not include an automatic enrollment feature, which SBS notes is an effective way to combat participants’ inertia and get them to save.

More than 65% of respondents said they offered an employer matching contribution, while only 33% said they currently offer a Roth contribution option. SBS notes that an employer matching contribution encourages employees to participate in the plan. Similar to a Roth IRA, the Roth 401(k) or 403(b) allows participants to save on an after-tax basis but provides for tax-free withdrawals at retirement. Additionally, the income limitations that often preclude individuals from contributing to a Roth IRA do not apply when such contributions are made within a qualified retirement plan. “In the right circumstances, a Roth is a good way to save for retirement,” SBS says.

The report of full results of the survey can be requested here.