DC Sponsors Say Reviewing Fees Most Important Fiduciary Action

Defined contribution (DC) plan sponsors said reviewing plan-related expenses was the most important fiduciary action they took over the past year, according to a Callan Associates survey.
Virtually all (93.3%) of the plan sponsors in Callan’s 2010 Defined Contribution Trends Survey: Getting the DC Plan Back on Track had calculated the fees of their DC plan within the past 24 months, with the majority (84%) having done so within the past year, according to a press release. Plan sponsors also said that in 2009 they kept a sharp eye on monitoring and evaluating fund performance and increased their communications to calm participants’ fears about the market decline.

However, in 2010, strategic initiatives—which include reviewing investment structure and plan design—will rise in importance. “In 2009, plan sponsors were consumed with managing poorly performing investments and helping participants navigate the market collapse,” said Lori Lucas, defined contribution practice leader at Callan, in the press release. “Now that most of the fires have been put out, sponsors are focusing on how to reposition their plans for any market challenges ahead.”

In 2009, real return/TIPS funds were the most common fund additions and will likely keep that position in 2010. The second most common fund additions in 2009 were target-date funds, which are also expected to remain in that spot in 2010, according to the survey.

Most DC plans now have a qualified default investment alternative (QDIA), with 69.3% of plan sponsors reporting that a target-date fund is their default. Lucas pointed out in the press release that in 2009, 55.9% of plan sponsors offered the target-date mutual fund of their recordkeeper, and that number is expected to be 56.5% in 2010.

Mutual funds dominate as an available investment vehicle (93.2%). However, more than half of plan sponsors (52.7%) also use collective trusts—often a stable value fund—and more than one-third (37.8%) use separate accounts.

Nearly 19% of plan sponsors either reduced or eliminated their company matching contribution in 2009, but in 2010, only about 8% plan to take that action. Over the next 12 months, 58% of sponsors that either reduced or eliminated the match plan to reinstate it.

The adoption of auto features has plateaued, with just under half (43.9%) of plans offering automatic enrollment in 2009—a figure that has changed little since 2007. Similarly, the proportion of plans offering automatic contribution escalation has stagnated to about one-third over the past several years.

Callan surveyed 90 companies representing more than $300 billion in DC assets. The majority of respondents (nearly 74%) offer 401(k) plans and one in 10 have 403(b) plans—double the amount in Callan’s 2008 survey. The majority of plans have more than $100 million in assets and one-third have assets of more the $1 billion. Fifty-four percent view their DC plan as the primary company retirement plan.