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Corporate Defined Contribution Plans Report Highest Number of Plans in a Decade with Fixed Record-Keeping Fees

September 22, 2016 / by NEPC

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Overall plan fees at an all-time low 

81% of plans have renegotiated their fees since 2013 

Use of index funds continues to rise 

BOSTON, September 22, 2016 – NEPC, LLC (www.nepc.com), one of the industry’s largest independent, full-service investment consulting firms to corporate defined contribution plans, today published the results of its 11th Annual NEPC Defined Contribution Plan and Fee Survey, which looks at trends in the management of America’s employee-fueled retirement plans. Data shows that DC plan record-keeping and investment management fees continue to decline.

Click here for an infographic that highlights the survey’s primary findings.

Click here to register for the Sept. 28 webinar on the study.

“Plan Sponsors continue to look for ways to promote fairness and transparency,” said Ross Bremen, Partner and NEPC’s Defined Contribution Strategist. “The majority of plans in our survey are now contracted on a fixed dollar basis. While most plans still have some level of revenue sharing, we are seeing plans of all sizes looking for ways to reduce reliance on it.

“The fact that plan fees are at their lowest level in a decade gets a lot of attention,” Bremen continued. “We thought this might be the year that fees level out. While lower fees reflect the good work sponsors have done to reduce fees on participant’s behalf, at some point service levels could suffer. A race to the bottom, at the risk of sacrificing service and innovation, is not in the participants’ best interests.”

According to the survey, the asset-weighted average expense ratio for DC plans is currently 0.42% versus the 2006 level of 0.57% when NEPC first conducted its study. Eighty-two percent of plans have re-contracted their record-keeping fees since 2013, which has led 51% of plans with to have a fixed-fee record keeping arrangement, based on the findings.

In terms of plan design, the survey shows that the median number of plan investment options for participants is 22, the same as last year. Among those investment options, target date funds (TDF) are still the cornerstone of defined contribution offerings, as these turnkey solutions are available in 94% of plans. Furthermore, 88% of plans use TDFs as their qualified default investment alternatives. While much has been written about the growing popularity of “passively managed” investment options, virtually no respondents in the Survey are 100% passive.  

The survey indicates that 34% of plans include passive TDFs and about 43% of plans have the makings of a passive tier to complement active options. The median number of passive core offerings is three, and 10% of plans added an index fund in 2015 as a new or replacement offering.

Other survey findings include:

  • Lifetime income offerings are now offered by five percent of plans versus none in 2012.
  • The percentage of plans offering stable value funds remains unchanged at 47%, the same level as 2012. Prevalence didn’t decline significantly following the credit crisis and it hasn’t increased as a result of low interest rates and money market reform.
  • In 2006, just one in four plans offered brokerage services, and this year almost half (49%) of plans have this feature, with 54% offering full brokerage and 46% offering only mutual funds. However, only 1% of employees use this feature.
  • Company stock remains a fixture in retirement plans, offered in 28% of plans. Approximately 60% of public companies offer these securities.

Said Bremen: “The lifetime income figure is one to watch. There is no question that it is taking time for sponsors to get comfortable with the current solutions, but the plan sponsor has become much more engaged with their employees’ DC options in the last decade-plus, and we predict this trend will continue. Look for a focus on innovation in the areas of lifetime income and financial wellness to continue.”

The Future of Healthcare Retirement Plan Design

NEPC, which advises on $55 billion in healthcare assets, has tracked healthcare retirement plan trends as part of its DC Plan and Fee Survey since 2013.

Click here for a healthcare infographic that highlights the survey’s primary findings.

This year’s survey shows that the retirement plan structure for healthcare companies is evolving to resemble those in the Corporate DC space, though varied plan types (e.g., 403(b), 401(a), 401(k), etc.), still presents a complicated landscape. Healthcare plans are innately more complex, often grappling with larger boards and extensive M&A activity in this industry also means that healthcare entities often have multiple plans to contend with.

On a positive note, the survey revealed that asset-weighted average expense ratio for healthcare DC plans is 0.50% (versus 0.42% in corporate DC plans), down from 0.64% in 2013.

“Healthcare plan sponsors are doing yeoman’s work when it comes to adapting to a rapidly changing retirement landscape,” said Timothy Fitzgerald, a consultant on the NEPC healthcare team. “They’re tasked with managing multiple plans with differing rules, like Hercules wrestling the Hydra. But like corporate America, they are heading in a positive direction for their plan participants today and have made tremendous strides over the last few years.”

About the Survey

The 11th Annual NEPC Defined Contribution Plan and Fee Survey had 117 respondents from DC plans with $127 billion in aggregate assets, representing 1.4 million plan participants. The average plan size of the respondents was $1.1 billion and each plan had more than 12,000 participants. Copyright is held by NEPC.

For the full survey results, contact Matthew Kirdahy at matt@w.group.

About NEPC, LLC

NEPC, LLC® is an independent, full service investment consulting firm, providing asset allocation, manager search, performance evaluation, and investment policy services. It works with institutional investment programs and high net worth clients on both an advisory and discretionary basis.

The firm has offices in Atlanta, Boston, Charlotte, Chicago, Detroit, Las Vegas and San Francisco, and advises $925 billion in institutional assets. The firm services Corporate Defined Contribution clients representing assets of $184 billion, while the Healthcare Group advises $55 billion in client assets. All asset figures current as of 6/30/16. Learn more at http://www.nepc.com/clients/defined_contribution.

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Topics: Defined Contribution, News

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