The survey found slightly fewer plan sponsors reviewed their investment policy statements, conducted investment structure evaluations or made manager replacements in 2013 than in 2012. In 2013, 60.4% of DC plan sponsors updated their investment policy statement—down from 63.3% in 2012. The percentage of plan sponsors that conducted an investment structure evaluation to determine gaps or overlaps in the investment offerings was 61.6%, compared with 68.5% in 2012.
Lori Lucas, leader of Callan’s Defined Contribution Practice, tells PLANADVISER, “If you look at 2012, it was a really active year in a lot of these categories because plan sponsors were getting a lot of information about fees acting on that. There is still activity in 2013, but it is leveling off. A lot of the work has been done.” Lucas adds that it is not necessary to perform investment structure evaluations every single year, but plan sponsors should review their investment policy statements every year.
Thirty-one percent of plan sponsors replaced funds or fund managers for performance-related reasons in 2013, compared with 41% in 2012. “When the market is doing well, we won’t see as much manager replacement,” Lucas explains.
According to the survey report, 2013 was the first year in the survey more plan sponsors decreased the number of funds in their DC plan investment lineup (17.5%) than increased them (9.5%). Lucas says, “Plan sponsors have been giving lip service to a streamlined lineup for years, but there was always an attractive fund out there to improve diversification—for example, Treasury inflation-protected securities (TIPS)—but fewer plan sponsors are looking for such alternatives, and many have already added them.”
While focused less on investment offerings in 2013, more plan sponsors offer automatic plan features and are doing so in a robust way. Is this part of the refocus on participant outcomes? What else does this say about plan sponsor thinking? “A very encouraging sign we saw in the survey was the amount of focus on savings,” Lucas says. “So [plan sponsors are] not only getting people into the plan via auto-enrollment, they are adding auto escalation." She points out that 87% of plans with auto-enrollment now have auto-escalation. In addition, fewer plan sponsors offer auto-escalation as an opt-in feature, not an automatic feature for which participants have to opt out. “Plan sponsors are saying, ‘not only do we want employees in the plan, but we want them saving at adequate percent,’” Lucas says.
“There’s certainly a lot of evidence that when plan sponsors are evaluating features in their plan, they are aware of the impact on participant behavior, and asking how adding certain feature impacts participant behavior,” Lucas concludes. “The focus used to be about participating, now it’s more about outcomes.”
Callan fielded its 2014 DC Trends Survey in the fall of 2013, with responses from more than 107 DC plan sponsors. The survey report is only available to Callan clients.