Data & Research April 15, 2011

SPARK Finds DC Participants Pay Attention to Plan

Defined contribution (DC) plan participants pay the most attention to their current balance (42%), rather than other plan elements.
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Account balance was followed by fund performance (29%) and asset allocation (26%), according to the 2011 Retirement Market Update by the Society of Professional Asset-Managers and Record Keepers (SPARK). The survey found participants pay the least attention to fees (20%) and how much income their DC plan account might generate for them in retirement (22%).  

The level of attention paid to most of these issues increases with age and household income, SPARK said. For example, among participants 50 years of age and older, 55% pay a great deal of attention to their balance and 38% to their funds’ performance, while 34% are focused on how much income their account might generate in retirement and 23% pay attention to fees.  

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The research reveals that almost half (45%) of all DC plan participants took no action with respect to their plan during the 12 month period from the fall of 2009 to the fall of 2010. Among the 55% that took one or more actions, the most frequent activities included changing asset allocations, reallocating future contributions and increasing the deferral rate. While 12% increased their deferral rate, just 4% decreased it. Only 1% reported stopping contributions altogether.  

SPARK said the level of activity increases among older participants and those with higher incomes.   

Participants’ current attitudes about retirement are not upbeat. More than half of participants responding to the survey expect to work in retirement, and nearly half expect a reduction in their standard of living in retirement. Health care expenses in retirement are a huge and growing concern.   

According to the report, all of this has led a substantial percentage of participants to consider delaying retirement beyond their original target date – 34% of all participants, more than 50% of those in the pre-retirement (50-64) age group, and 75% of those who have already reached the normal retirement age of 65 or more.
Compliance April 15, 2011

ASPPA Seeks Retirement Plan Exemption from Adviser Rules

Two associations expressed concern over how the application of proposed rules by the Securities and Exchange Commission (SEC) will impact retirement plan professionals who work with government-sponsored retirement plans.
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The American Society of Pension Professionals & Actuaries (ASPPA) and the National Tax Sheltered Accounts Association (NTSAA) issued the statement. Craig P. Hoffman, General Counsel and Director of Regulatory Affairs of ASPPA, said “We believe that the Dodd-Frank Wall Street Reform and Consumer Protection Act was not intended to extend the municipal advisor registration requirements to those who work with governmental retirement and savings plans. This is particularly true for governmental retirement savings plans funded exclusively with employee contributions. Similarly, providers of advice and information to the participants in governmental retirement and savings plans should not be subject to registration as municipal advisors.”  

Hoffman explained that many professionals that work with participants in governmental defined contribution 403(b), 401(a), 457 and traditional retirement plans are not engaging in ‘municipal advisory activities.’ He noted as an example those who work with teachers in public schools who participate in a 403(b) savings plan sponsored by their school district. In many cases, these plans require employees to direct how their accounts will be invested among the options that are offered, and it may be that a professional provides a wide range of participant advisory services such as general investment education, computer investment modeling and individual investment advice which may be provided by investment advisers and their associated persons which are not required (or permitted) to register with the Commission.  

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Hoffman contended that if the Act’s registration requirements (see "SEC Proposes New Rules for Advisers") were to be applied in this context, it would have a severe chilling effect on the availability of advisory services, and may cause a market disruption in favor of larger, SEC-registered investment advisers by subjecting only smaller, local investment advisers to the municipal advisor registration requirements and associated MSRB rules.  

“Clearly, a law aimed at regulating the practices associated with municipal bonds should not be applied inappropriately and inconsistently to those advising participants in governmental retirement and savings arrangements,” Hoffman said.  

“ASPPA and NTSAA recommend that the Proposed Rule be clarified to exclude advice given to participants in governmental retirement or savings arrangements sponsored by municipal entities, and that state-registered investment advisers be exempt from the definition of “municipal advisor” to the extent they are providing advice that otherwise would be subject to the Investment Advisers Act, but for the operation of a prohibition to, or exemption from, Commission registration.”

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