Survey: DC Plans Adopting Auto-Features And Flexible Distributions

NEPC, LLC one of the industry’s largest independent, research-driven investment consulting firms, today announced the results of their 2019 Defined Contribution Plan and Fee Survey.

The survey looks at trends in the management of America’s employee-fueled retirement plans by examining the prevalence of plan features relating to increasing savings rates, professionalizing the investment decision, and facilitating the distribution of assets at retirement. The results of NEPC’s survey shows how plan sponsors are using innovative strategies to address many of the unique challenges posed by the “new American retirement.”

Seventy-six percent of corporate plans and 54 percent of healthcare plans have included an automatic enrollment feature into their plan designs as a measure to help increase overall plan participation. Of the plans that incorporate auto-escalation, almost half (48 percent) offer it as an opt-out feature - a significant change from 2010 when 72 percent of plans that offered auto-escalation indicated they required participants to opt-in to this feature. For those plans with more than $1bn in assets, 24 percent offer participants custom target date funds tailored to participant characteristics, likely as a strategy to better control the glide path and investment allocations.

“Americans simply haven’t saved enough for retirement, which is motivating many plan sponsors to reassess plan design, menu options, and distribution features to create meaningful solutions,” said Ross Bremen, Partner at NEPC and a member of the firm’s Defined Contribution Practice Group. “Concurrently, employers and sponsors are feeling the pressure to deliver competitive solutions that help recruit top talent, reduce costs and threats of litigation, while also helping deliver on sponsors’ fiduciary responsibilities. The SECURE Act is a watershed moment that will likely help plan sponsors on all these fronts by creating a new market for open multiple employer plans and empowering sponsors with the ability to include more lifetime income products.”

Key survey findings include:

• Auto-features have been broadly adopted: Plan features like automatic enrollment and automatic increase are widely considered solutions to the retirement savings problem, as inertia has proven to be a very powerful behavioral trait. Sixty-eight percent of plans offer auto-enrollment and 53 percent offer auto-escalation features. These features help bring the total participation rate among all plans to 81 percent (83 percent for corporate plans and 70 percent for healthcare plans).
• Investment menus have stayed largely the same: The number of core menu investment options (11) and the provision of target date funds (offered by 96 percent of plans) has remained relatively stable over the past several years. What has changed is where participants have their assets invested, with 39 percent of plan assets now invested in target date funds, on average.
• “Retiree-friendly” distribution features are common: The majority of plans surveyed offer several types of distribution options, including lump-sums, partial withdrawals, installment payments and in-service withdrawals.

Fees continue to be a focus for most plans, with investment fees constituting the majority (80 percent) of a sponsor’s total plan cost. Plan administration fees account for fourteen percent of total costs. Over half (53 percent) of all respondents indicated that fixed dollar contracts are their preferred method of contracting plan administration fees, followed by fixed basis point (22 percent) and bundled contracts (21 percent).

The remainder of the total cost is attributed to additional fees earned by record keepers for ancillary services such as loan origination, loan maintenance, QDRO’s, and managed accounts. As record keeping and investment management fees have come down over the last decade, service providers have looked for ways to recapture lost revenues. In some cases, these “other” fees can even be larger than the record keeping fee.

While some believe managed accounts would be a key solution that addressed participants’ retirement concerns via personalized advice, NEPC’s survey shows only 37 percent of plans utilize this investment feature - likely due to the increased costs attached to these accounts.

While ESG continues to be a key discussion topic around the financial world, adoption of ESG-related plan menu options has not mirrored ESG adoption in other sectors. Just over eight percent of all plans offer an ESG-related option. The type of plan is a large driver of adoption, with over 13 percent of healthcare plans including an ESG option as compared to just four percent of corporate plans.

For more information on NEPC’s 2019 Defined Contribution Plan and Fee Survey, click here.

About the Survey

This survey was conducted online by NEPC’s Defined Contribution Practice Group in October 2019, prior to the passage of the SECURE Act. The survey had 121 respondents across corporate, healthcare, and not-for-profit plans with $135 billion in aggregate assets, representing 1.5 million plan participants. Copyright is held by NEPC.

About NEPC, LLC

NEPC is an independent investment consultant and private wealth advisor with more than 30 years’ experience creating research-based, bespoke investment portfolios that align to the goals of its clients and their constituencies. Combining a proprietary research team dedicated to the long-term challenges facing institutional and high-net investors, with our unique client-centric model, NEPC builds the investment portfolios defining the future of finance.

We service over 360 retained clients representing assets over $1 trillion from our offices in Boston, Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Portland and San Francisco with a forward-thinking approach to solving the most complex challenges facing the investment industry.

To learn more about NEPC, please visit https://www.nepc.com/