Data & Research May 11, 2010

Recession No Hindrance to 403(b) Transformation

Despite having to comply with a new set of regulations during one of the worst economic downturns, the 403(b) plan market appears to be healthier than ever, according to a new survey.
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The 2010 403(b) Plan Survey from the Profit Sharing/401k Council of America (PSCA) indicated that plan sponsors are adjusting well to the new regulations imposed by the IRS, and that participation and account balances remain high. 

Sponsored by the Principal Financial Group, the study showed that 56.8% of plan sponsors made changes to their plans because of new regulations—more than the 41% that had planned to make changes according to the 2008 403(b) Plan Survey. Fewer small companies made changes as a result of the new rules than large companies (just 48.3% of plans with one to 49 employees made changes versus nearly 70% of plans with 200 or more employees).

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The survey also revealed that the overall participation rate for employees eligible to participate in a 403(b) plan remained unchanged from the 2008 survey at 75.8%. The average account balance for active plan participants is $71,879.   

In addition, few participants (1.3%) took hardship withdrawals in 2009, even though 76% of plans permit them. 

However, some confusion still exists as the survey found one-third of respondents are unsure if their plan has an investment policy statement, 7.1% of respondents are unsure of their plan’s ERISA status, and 3.7% are unsure if they file a Form 5500. 

Three-quarters (75%) of plans that participated in the survey are ERISA, and 77.5% stated that they file a Form 5000. For 35.5% of organizations that file a Form 5500, the form is prepared by the plan’s recordkeeper, and 33.9% of organizations prepare the Form 5500 themselves.

403(b) Plan Stats after the Transformation 

The 2010 403(b) Plan Survey from the Profit Sharing/401k Council of America (PSCA) found 84.2% of employees at respondent organizations are eligible to participate in their organizations’ plans, up slightly from 83.5% in 2007. Large organizations (more than 1,000 participants) have the highest percent of eligible employees (88.8%). 

More than one in 10 (11.5%) of plans have an automatic enrollment feature. Automatic enrollment is more prevalent for large plans (21.9% of plans with 1,000 or more participants).  

Among plans with automatic enrollment, 43.5% have a default deferral of 3% of pay and 19.6% have a default deferral of 2% of pay. The most common default option is a target-date fund (38.8%)—a shift from the most common default option in 2007, which was a money-market fund (30.2%). 

A large majority (83.2%) of organizations make contributions to their plans. The most common formula is a guaranteed percentage of participant’s pay only (17%), followed by a stated employer match only (13.9%), and a fixed match only (8.9%).  

Nearly all plans (97.3%) permit participant contributions. Pre-tax contributions are permitted in 97.1% of plans, while Roth and 401(m) after-tax contributions are permitted in 15.6% of plans. 

Catch-up contributions for participants age 50 and over are permitted in 94.5% of plans, and 16.1% of eligible participants made catch-up contributions. Of organizations that permit catch-up contributions, 16.4% match them. 

Nearly 14% of plans permit Roth after-tax contributions, up from 10.9% in 2007. The percentage of large plans offering Roth increased significantly, from 17% in 2007 to 29.4% in 2009 for plans with 1,000 or more participants, and from 5.6% in 2007 to 19% in 2009 for plans with 200 to 999 participants. 

More than three-quarters (76.2%) of plans provide immediate vesting for non-matching contributions and 65.3% of plans provide immediate vesting for matching contributions. Among plans that do not provide immediate vesting, graduated vesting is the most common arrangement for matching contributions and cliff vesting is the most common arrangement for non-matching contributions. 

Plans offer an average of 20 funds for organization contributions and an average of 21 funds for participant contributions. Twenty-eight percent of plans offer 26 or more funds for participant contributions.  

Forty-five percent of respondents have an investment policy statement. The survey found 43.5% of organizations offer investment advice to participants, with the most common type being one-on-one counseling in person (79%). 

Seventy-six percent of plans allow hardship withdrawals—88% for medical expenses, 72% for post-secondary education, and 50.7% for purchase of a primary residence or to prevent eviction or foreclosure. Seventy-three percent of plans allow loans—48.7% for any reason and 24% only in hardship situations. More than a third (36.8%) of plans allow participants to have more than one loan outstanding. 

The 2010 403(b) Plan Survey reported on the 2009 plan-year experience of 552 plan sponsors from across the country—a 43% increase in the number of respondents from the 2008 403(b) Plan Survey.  

Full results are available at www.psca.org.

Deals & People May 10, 2010

BNY Asset Management Chief Jumps to Fidelity

Ronald O'Hanley, president and CEO of BNY Asset Management is moving on—and Fidelity Investments is restructuring.
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Fidelity Investments announced the establishment of separate Asset Management and Distribution organizations, promoting Abigail Johnson to head all distribution channels and hiring BNY Mellon Asset Management President and CEO Ronald P. O’Hanley to lead Asset Management and Corporate Services. Both will report directly to Edward C. Johnson III, Fidelity chairman and chief executive officer. All of the current leaders of the organizations who will report to O’Hanley and Abigail Johnson will remain in their roles, according to an announcement.

“This new structure will position Fidelity strategically for the future by bringing all of the firm’s distribution resources together to focus on providing outstanding products and services to Fidelity’s clients and customers,” said Edward Johnson in announcing the move. “At the same time, Ron O’Hanley will bring valuable asset management and executive experience to our investing and corporate functions as well as a strong leadership track record. We are looking forward to having him join our firm.”

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Interim Steps

BNY Mellon said that Jonathan Little and Mitchell Harris will co-head the company’s asset management business on an interim basis following the departure of O’Hanley, president and chief executive officer of BNY Mellon Asset Management.

Little is vice chairman of BNY Mellon Asset Management and represents Asset Management on BNY Mellon’s Executive Committee, while Harris is chairman of the Fixed Income, Cash and Currency Group of BNY Mellon Asset Management. Both will also continue in their current roles as they assume their interim responsibilities, reporting to BNY Mellon Chairman and Chief Executive Officer Robert P. Kelly, according to the announcement.

The company said it will conduct a “comprehensive search” for a permanent head of the asset management business, “considering internal and external candidates.”

O’Hanley’s New Role  

Fidelity said O’Hanley will join the company as president of Asset Management and Corporate Services in mid-summer. In that role he will oversee all of Fidelity’s Asset Management organizations, including Fidelity Management & Research Company (FMRCo), Pyramis Global Advisors, and Fidelity’s Asset Allocation Division, comprising Strategic Advisers, Inc., and Global Asset Allocation, as well as all corporate functions.

He also will oversee Financial Services Finance, Legal, Human Resources, Government Affairs and Public Policy, Operations, and Administration.

Prior to the merger of The Bank of New York and Mellon Financial Corporation in July of 2007, O’Hanley was vice chairman of Mellon Financial Corporation and president and CEO of Mellon Asset Management. He joined Mellon in February 1997 from McKinsey & Company Inc.

Johnson’s New Role

In her new role, Abigail Johnson, who has led Fidelity Personal and Workplace Investing and its predecessor organization for the past five years, will oversee all of Fidelity’s customer and client-focused businesses, including Fidelity Institutional, Personal Investing, Workplace Investing, and Fidelity Investments Institutional Services as part of a new unit: Fidelity Personal, Workplace and Institutional Services. Johnson assumes those new responsibilities as president of the unit immediately.

In addition to her current role overseeing Personal and Workplace Investing, Johnson is a vice chairman and director of FMR LLC, the holding company for the businesses of Fidelity Investments; a member of the Fidelity Executive Committee; and chairman of the Fixed-Income/Asset Allocation Board of Trustees.

In her new role, she will oversee all of the firm’s distribution channels, adding Fidelity Institutional (which serves banks, broker/dealers, insurers, registered investment advisers, and other financial professionals) and Fidelity Investments Institutional Services Company (FIIS), which provides investment management services through investment professionals at financial institutions nationwide to her responsibilities.

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