DC Plans’ Main Focus in 2019 Is Fees: Survey

Eighty-six percent of defined contribution plan sponsors in a new survey offered a 401(k) plan as the primary DC plan, and 85% of surveyed plans offered a Roth feature — up from 68% in 2016.

Callan, an employee-owned investment consulting firm, conducted an online survey in September and October among 106 DC plan sponsors, including both Callan clients and other organizations. Some 90% of plans in the survey had more than $100 million in assets; 62.2% were “mega plans” with upward of $1 billion in assets.

Plan sponsors said the most important step in improving fiduciary positioning in 2019 was reviewing plan fees. Plan fees replaced retirement readiness, last year’s highest rated area, which fell to the middle of the priority list for 2019.

“With the amount of fee study and recordkeeper search project work we see, it is not surprising that fees are the No. 1 priority for plan sponsors in 2019,” the report’s co-author and a Callan DC consultant, Jamie McAllister, said in a statement.

“What is surprising: Over 40% of plan sponsors said they don’t evaluate indirect revenue when calculating and benchmarking fees. As indirect revenue can be a meaningful amount, we feel it’s important for sponsors to consider this in their overall fee evaluation.”

One in five plans in the survey said they intended to conduct a recordkeeper search in 2019.

Callan also found that fee payments were shifting away from participants, as 32.5% of all administrative fees were paid entirely by participants last year, way down from 62.7% in 2017.

Survey respondents indicated participant communication and financial wellness (a new category in this year’s survey) were the next two highest areas of focus for 2019. Callan said prioritizing financial wellness and communications would likely go hand-in-hand this year.

Although cybersecurity has been much in the news, respondents put it dead last as a priority area for 2019.

Surveyed plans reported that participation rate/plan usage was the most important indicator of plan success in 2018, the same as the previous two years, followed by contribution/savings rate, cost effectiveness and investment performance.

Twenty-two percent of plan sponsors said they had made a change to their company match policy in 2018, a significant increase from 2.3% that did this in 2017.

In addition, more than a third anticipated making a change in 2019, with 23% planning to increase the match and only 6.6% saying they would eliminate or reduce it.

Fifty-eight percent of plan sponsors said they had a policy on asset retention. Seventy percent were focused on retaining assets, many of them offering an institutional structure that was more cost effective than anything in the retail market.

A recent study found that three in five 401(k) plan sponsors preferred that retired/separated participants take their savings and leave the plan.

Eighty-four percent of plans in the Callan survey said they worked with an investment consultant, with 68% using only a 3(21) nondiscretionary advisor and 16% exclusively or partially using a 3(38) discretionary one.

Sixteen percent were unsure whether they used a discretionary or nondiscretionary consultant.

Eighty-seven percent of plans reported that they had a target date fund, and 75% said they used collective trusts in their fund lineups.

— Check out Why 401(k) Growth Is Flattening on ThinkAdvisor.