Damage Control

2011 PLANADVISER Micro Plan Survey As of 12/31/2010, 90% of defined contribution plans in the U.S. were “micro” plans (defined as those with $5 million or less in DC assets), covering approximately 16 million participants. In terms of total plan assets, however, micro plans only account for about 10.3% of the $4 trillion in U.S. DC plans, according to PLANSPONSOR’s annual Recordkeeping Survey.

In many ways, micro plans are simply smaller versions of much larger plans found at, say, Fortune 500 companies. As is the case at large plan sponsors, for micro plans there are challenges of educating employees about the benefits of the plan, selecting and monitoring plan investments, keeping costs in check, filing tax forms, and making sure that providers are serving plan participants well, just to name a few commonalities.

Micro plans are also very different from large plans in many ways. Most notably, micro plans usually exist at very small organizations, which typically do not have the luxury of having a full-time benefits manager, let alone someone whose job is focused solely on the retirement plan. Plan advisers and consultants thus can play a vital role with helping micro-plan sponsors structure, execute, and manage their retirement plans.

In terms of plan features, micro plans have made progress in the past year. For instance, almost 20% of micro plans now have implemented auto-enrollment (up from 18% in last year’s survey), 8% use auto-deferral increases (up from 4%), and 84% have some sort of employer match or contribution (up from 70%), and about 18% offer immediate eligibility (about the same as last year).

Plan oversight and management also seem to have improved in the micro-plan market; 37% of micro plans now claim to have a written investment policy statement (versus about 30% last year), although that is still certainly an area for improvement. About 46% of micro plans this year have an investment committee for the DC plan, which is a huge improvement from 21% last year. About half of micro plans use a financial adviser, which is down slightly from 2010.

About half of micro plans pay all of the plan fees—versus just 15% of plans that do so in the larger than $200 million market. Another 22% of micro plans share fees between participants and the sponsor, and about 20% of micro plans pay for expenses from participant investment revenue sharing and fixed costs charged to participant accounts, a much more common practice at larger plans.

Outcomes for micro plans were mixed this year but, considering the turbulent economy, nothing to be alarmed by. Outstanding loans jumped from 5% of plan participants to about 10% this year, and participants making hardship withdrawals went from about 1% to about 2%. However, about two-thirds of eligible participants are taking advantage of their organization’s maximum matching contribution, and plan participation rates were down only slightly—to a median of 72% from 75% last year. Despite an unfriendly economic environment, plan sponsors and participants in micro plans seem to be weathering the storm relatively well. —Quinn Keeler

METHODOLOGY: Between late June and late August 2011, approximately 50,000 survey questionnaires were sent to defined contribution (DC) plan sponsors from the PLANSPONSOR magazine database, as well as to client lists supplied by DC providers; 6,885 total usable responses were received by the close of the survey on August 26, 2011. Full survey results are available in the November 2011 issue of PLANSPONSOR and on plansponsor.com. Of these responses, 3,087 were from “micro” plans (<$5 million in DC plan assets). The micro plans were divided into two subcategories: <$1 million in plan assets (1,112 responses); and $1 million–$5 million in plan assets (1,975 responses). In order to qualify for rating in the survey, providers needed a minimum of 35 total client responses. In order to be rated in a particular asset category, a provider needed at least 15 client responses in either of the two micro asset categories. Best in Class awards were given to the top quartile provider scores for each question by asset category. Only those providers winning at least one Best in Class award are listed in the Best in Class tables. In addition to the data published here, customized research reports are available by provider, by market segment, and by industry. For more information, contact Brian O’Keefe (bokeefe@assetinternational.com).