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NAPA: Auto Features, Brokerage Accounts Grow in DC Plans

February 12, 2021

National Association of Plan Advisors (NAPA) published a piece on the 2020 DC Plan and Fee Survey's findings: Auto Features, Brokerage Accounts Grow in DC Plans

DC PLAN DESIGN

The results of a new survey reveal that certain plan features have seen a significant increase in adoption, while others have struggled to gain traction.

For instance, brokerage accounts in DC plans have grown from 19% in 2005 to 60% of plans in 2020, according to findings from NEPC’s 15th annual DC Plan and Fee Survey, which examines DC plan features, investment menus, participation rates and fees during 2020. 

By contrast, managed accounts are not offered by a majority of plans, having increased from 13% in 2005 to only 36% in 2020. According to NEPC, this increase was minor despite significant marketing efforts of managed account service providers.

Auto Features

Auto-enrollment and auto-escalation features continue to be popular and effective. Overall, the survey found that 64% of respondents (74% corporate) offer auto-enrollment, which was a significant from 2005 when only 21% of plans offered auto-enrollment. The widespread adoption of auto-enrollment has helped lead to a relatively high average participation rate of 82% for respondents in 2020 (86% corporate). 

Forty-nine percent of respondents offer auto-escalation features (66% corporate). One trend that is continuing is the percentage of plans requiring participants to opt-out versus opt-in. Of the plans that incorporate auto-escalation, 61% of respondents overall (56% corporate) offer it as an opt-out feature. In 2010, 72% of plans that offered auto-escalation indicated they required participants to opt in. 

The average deferral cap is 15% among plan respondents overall, including corporate, the findings further show. 

Investment Menus

Investment menus have largely stayed the same, with target date funds continuing to see a significant increase in utilization. TDF utilization increased from 76% of plans in 2005 to 96% in 2020. Plan assets invested in TDFs registered at 42% overall (39% corporate). 

Additional findings show that 25% of plans with greater than $1 billion in assets have custom TDFs. Active/Blend TDFs are more commonly offered than passive TDFs across all plan sizes. 

The total number of investments registered at 23 among both overall and corporate respondents. Company stock was offered by 27% of plans overall (41% corporate).

In addition, 45% of plans offer stable value as the sole capital preservation option. The offering of both stable value and money market options was reported as more common among large plans, with 18% of plans with $1 billion or more in assets offering both. 

Plans continue to utilize blended strategies, with 58% of respondents offering a passive tier (defined as three or more passively managed funds, including at least one fixed-income option), according to the findings.  

“As plans continue to innovate, we expect to see more focus on plan design elements that aid the post-retirement life of participants,” says Ross Bremen, Partner in NEPC’s Defined Contribution Practice Group. “Additionally, with a new administration in office, we’re keeping close watch on how potential legislative measures could impact plan design and implementation moving forward.”

Conducted online by NEPC’s Defined Contribution Practice Group, this year’s survey included 142 DC plans (66% corporate, 21% health care and 13% public, not-for-profit and Taft Hartley respondents) representing $191 billion in aggregate assets and a total of 1.8 million plan participants. 

Topics: Press, Press Coverage

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