The 2018 Defined Contribution Survey by San Francisco-based Callan has been released. Callan is a consultant to sponsors of defined contribution plans that advises on over $2 trillion across its client portfolio.
Callan’s survey—the 11th installment—draws data from 152 401(k), 403(b), and government sponsored 457 plans. More than 90 percent hold assets exceeding $100 million; and 60 percent are mega plans, with more than $1 billion in assets.
Here is a look at 10 key findings from the 50-page report, which examines the gamut of issues plan sponsors face, from plan design and deferral rates to compliance and plan communication trends.
1. Education vs. advice under DOL fiduciary rule
The fiduciary rule’s impartial conduct standards were implemented in June of 2017. While the standards require a fiduciary best interest standard on all advice to qualified retirement accounts, the rule’s warranty and disclosure requirements have been delayed until July of 2019, and may still be substantially revised.
Still, the rule has implications for service providers to DC plans and plan sponsors, perhaps most specifically to how participants receive rollover advice.
The larger fiduciary rule included an education carve-out, which would allow plan providers to give general information to participants without rising to the level of fiduciary advice. Many stakeholders raised concerns during the rule-making process that the carve-out was vague.
For most plan activities, Callan’s survey found that plan recordkeepers will assume an educational role, as opposed to taking on full fiduciary status advising on participants’ specific actions.
On the question of rollovers, 71 percent of sponsors said recordkeepers will be taking an educational role, while 27 percent said their service provider will be assuming full fiduciary responsibility, allowing direct investment recommendations.
Nearly 13 percent of sponsors said they were unsure of their recordkeeper’s position under the rule.
On contribution rate changes, 70 percent of sponsors said their participants will only have access to education from recordkeepers; 25 percent said participants will have access to fiduciary advice through recordkeepers; another 12 percent of sponsors are still unsure.
2. Plan sponsors’ monitoring requirements under fiduciary rule
Under ERISA, plan sponsors are fiduciaries and are legally required to monitor the actions of service providers.
Callan found that plan sponsors are largely unsure of what the fiduciary rule will mean for their monitoring requirements.
“There is no clear majority practice to monitor these (record keeper) services,” says Callan. The most prevalent monitoring requirements were reviewing the advice software of service providers, receiving reports on advice interactions, and reviewing samples of written communications.
Almost 43 percent of sponsors said they don’t know what they plan to do to monitor recordkeepers going forward.
3. Auto-default rates hit highest levels
The average deferral rate for automatically enrolled participants was 4.6 percent in 2017, the highest ever in Callan’s survey. In 2015, the average rate was 4 percent.
The use of auto enrollment has remained steady. Most sponsors use the feature for new hires, but more are re-enrolling existing employees—25 percent of employers are using the feature now for existing employees.
About 77 percent of plans that don’t use auto-enrollment plan to implement the feature in 2018.
4. Auto-escalation in use
Four-fifths of private sector employers use automatic escalation along with auto-enrollment. That rate has remained steady. But more sponsors are allowing participants to opt out of automatic contribution increases—71 percent said they now have the feature.
Of those that don’t use auto-escalation, 70 percent said they were likely to in 2018.
5. Use of recordkeepers’ proprietary TDFs continues to drop
In 2012, more than half of sponsors reported using their record keeper’s proprietary target-date funds for QDIA investments.
That trend has been on the wane. Last year, only 23 percent of sponsors used proprietary TDFs.
6. Non-proprietary CITs more common than mutual fund TDFs
Fee-conscious sponsors are opting for cheaper collective investment trust TDFs over traditional mutual fund TDFs. Sponsors using non-proprietary CITs have more than doubled since 2012. In 2017, 27 percent of sponsors used a CIT, compared to 25 percent that used a non-proprietary TDF mutual fund.
7. Fee monitoring
About 85 percent of sponsors calculated their plans’ all-in fees in 2017. Plan consultants and advisers offered the data 63 percent of the time.
And 77 percent of plans benchmarked their fees to other plans, most commonly via consultants’ databases.
8. Use of annuities
About 9 percent of sponsors offered an in-plan annuity option, double the number in 2015.
Sponsors cited slack demand, cost, and a lack of clarity on fiduciary implications for not using annuities.
9. Participants picking up fee tab
In 97.5 percent of the plans Callan examined, participants pay for fees either partially or entirely. Only 1.7 percent of sponsors paid plan fees.
The use of revenue-sharing agreements continued to decline last year. About 27 percent of plans had some revenue sharing, down from 38 percent in 2016.
Flat per-participant fees were used by 55 percent of plans, compared to 42 percent in 2016.
10. 2018 priorities
Retirement readiness is sponsors’ top priority in 2018. Reviewing plans’ design, fees, and compliance with Labor’s fiduciary rule are also among their priorities.