Ten years ago, many DC plan sponsors that offered escalation features required participants to opt in, but that appears to be changing, according to a new survey.
NEPC’s 14th annual "Defined Contribution (DC) Plan & Fee Survey" shows that 76% of corporate plans and 54% 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, nearly half (48%) offer it as an opt-out feature—a significant change from 2010, when 72% of plans that offered auto-escalation indicated they required participants to opt in to this feature.
Overall, the survey found that 68% of plans offer auto-enrollment and 53% offer auto-escalation features, which have helped bring the total participation rate among surveyed plans to 81% (83% for corporate plans and 70% for healthcare plans).
“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,” says Ross Bremen, Partner at NEPC and member of the firm’s DC Practice Group. Bremen adds that employers and sponsors are also feeling the pressure to deliver competitive solutions that help with recruitment, while also reducing costs and threats of litigation.
NEPC’s survey was conducted online in October 2019, prior to the passage of the SECURE Act. It had 121 respondents across corporate, healthcare and not-for-profit plans with $135 billion in aggregate assets, representing 1.5 million plan participants.
For those plans with more than $1 billion in assets, 24% offer participants custom target date funds tailored to participant characteristics, likely as a strategy to better control the glide path and investment allocations, the survey notes.
Investment menus have stayed largely the same, according to the findings. The number of core menu investment options (11) and the offering of TDFs (offered by 96% of plans) have remained stable over the past several years. What has changed is where participants have their assets invested, with 39% of plan assets now invested in TDFs, on average.
Meanwhile, fees continue to be a focus for most plans, with investment fees constituting the majority (80%) of a sponsor’s total plan cost. Plan administration fees account for 14% of total costs. Over half (53%) of all respondents indicated that fixed dollar contracts are their preferred method of contracting plan administration fees, followed by fixed basis point (22%) and bundled contracts (21%).
The remainder of the total cost is attributed to additional fees earned by recordkeepers for ancillary services such as loan origination, loan maintenance, QDROs and managed accounts. As recordkeeping and investment management fees have come down over the last decade, service providers have looked for ways to recapture lost revenues, the study notes, adding that in some cases these “other” fees can even be larger than the recordkeeping fee.
While some believe managed accounts would be a key solution that addressed participants’ retirement concerns via personalized advice, NEPC notes that its survey shows only 37% of plans utilize this investment feature.