Trends in Retirement Plans - SBEN DC trends v3-1.pdf · Department of Labor’s 2011–2012 fee disclosure requirements 5.1 2006 Pension Protection Act 5.1 2008–2009 market collapse

Trends in Retirement Plans

SEBCSpringAnnualEduca1on2014Conference

2016BirminghamWorkshopJuly121:15p.m.

Introduc1ons

AmyK.Parker,AIF®ManagingDirector,FiduciaryConsul=ngServicesNewportGroupHeathrow,FL

JamesM.Veneruso,CFA,CAIAVicePresidentCallanAssociatesSummit,NJ

Moderator

3 2016 DC Trends Survey Knowledge. Experience. Integrity.

DC Plan Management and Measurement

● The Department of Labor’s (DOL) 2011–2012 fee disclosure requirements tie with the 2006 Pension Protection Act (PPA) as plan sponsors’ top-ranking event influencing the management of DC plans.

●  In measuring the success of their plan, respondents indicate contribution/savings and participation are the two most important measures.

Rank which of the following events have most influenced the management of your organization’s DC plan

How do you measure the success of your plan?

Weighted Average Score (7=Most important) Weighted Average Score (5=Most important) Additional categories: Don’t measure (2.6) Don’t know (1.3)

Department of Labor’s 2011–2012 fee disclosure requirements

5.1

2006 Pension Protection Act 5.1

2008–2009 market collapse 4.3

2013 EBSA’s Tips for ERISA fiduciaries in monitoring and evaluating target date funds

4.2

2006 Schlichter, Bogard, and Denton fee lawsuits

3.6

Supreme Court’s 2014 decision invalidating presumption of prudence as a stock-drop lawsuit defense

2.8

U.S. Treasury initiatives to facilitate use of lifetime income solutions in DC plans

2.6

Other 2.0

Mos

t im

porta

nt

Contribution/savings rate 4.4

Participation rate/plan usage 4.4

Cost effectiveness 4.0

Employee satisfaction 3.9

Investment performance 3.9

Investment diversification 3.8

Benchmark against other plans 3.6

Retirement income adequacy 3.6

Ability to attract/retain employees 3.5


Fiduciary Positioning

● The most important step plan sponsors took within the past 12 months to improve the fiduciary position of their DC plan was to update or review the investment policy statement.

● Reviewing plan fees came in second, down from first place in 2014. C

● Changing the investment menu, conducting formal fiduciary training, and reviewing 404(c) compliance round out the top five.

Rank each of the following actions in terms of their importance in improving the fiduciary position of your DC plan within the past 12 months

Weighted Average Score (15=Most important) Additional categories: Changed trustee/custodian 8.8 Implemented a written plan-fee policy statement 8.7 Changed approach to company stock 8.5 Audited security protocols 8.3 Changed plan to safe harbor arrangement 7.3

Mos

t im

porta

nt a

ctio

ns

Updated or reviewed investment policy statement

12.8

Reviewed plan fees 12.3

Changed investment menu 12.1

Conducted formal fiduciary training 11.9

Reviewed 404(c) compliance 11.9

Replaced fund manager(s) 11.5

Changed/hired investment consultant 10.9

Reviewed/changed qualified default investment alternative

9.9

Changed recordkeeper 9.4

Changed communication approach 9.3


61.0% 61.7% 58.3% 52.1% 47.6% 51.3%

Automatic Enrollment

Does your DC plan offer automatic enrollment?

Reasons you do not currently offer automatic enrollment*

31.1%

26.7%

20.0%

15.6%

15.6%

11.1%

8.9%

6.7%

4.4%

Not a high priority Unnecessary (participation

is adequate) Non-ERISA plan (not

permitted)

Too costly Too administratively

challenging

Other Employees would not like

it Lack of buy-in by upper

management

Fiduciary concerns

*Multiple responses were allowed.

2015 2014 2013 2012 2011 2010


20%

30%

40%

50%

60%

2010 2011 2012 2013 2014 2015

Yes

Automatic Contribution Escalation

● The prevalence of automatic contribution escalation continues to lag automatic enrollment rates.

● Among plans not offering automatic contribution escalation, 16.7% are somewhat or very likely to adopt this feature in 2016.

Plans offering automatic contribution escalation

Reasons you do not offer automatic contribution escalation*


39.0%

22.0%

22.0%

18.6%

11.9%

10.2%

6.8%

1.7%

Not a high priority

Employees would not like it

Unnecessary (savings rates are adequate)

Lack of buy-in by upper management

Other

Fiduciary concerns

Regulatory reasons

Too costly


39.3% 34.3% 40.0% 44.1% 44.4% 46.8% 48.3%

Company Stock: Prevalence

● Just under 40% of plans offer company stock either as an available investment option or as an ESOP. This is down from nearly half of plans offering company stock in 2009, but up marginally from last year.

Do you offer company stock in the plan?

Is company stock offered in the plan?

23.8%

15.5% 1.2%

59.5%

No

No, but a stand-alone ESOP is offered

Yes, as an ESOP

Yes, as an available investment option

2015 2014 2013 2012 2011 2010 2009


Limiting Company Stock Liability

● All plan sponsors that offer company stock have taken some action to limit their liability, with an average of three actions being taken.

● The change in the proportion of plan sponsors monitoring (versus hardwiring) company stock is likely a direct result of the Dudenhoeffer decision.

How do you limit potential liability with respect to company stock?*


100% have taken some action to limit potential liability

73.3%

50.0%

46.7%

30.0%

30.0%

23.3%

16.7%

13.3%

6.7%

0.0%

54.5%

27.3%

36.4%

9.1%

40.9%

27.3%

9.1%

9.1%

4.5%

9.1%

Communicate to improve diversification out of company stock

Regularly review company stock in investment committee meetings

Offer tools to improve diversification out of company stock

Cap contributions to company stock

Hardwire company stock into the plan document

Outsource oversight of company stock

No insiders are on the oversight committee

Provide clear guidelines for evaluation and monitoring in the investment policy

Company stock is frozen

Other

2015 2014


80%

85%

90%

95%

100%

2008 2009 2010 2011 2012 2013 2014 2015

Yes

Default Investments

● A key provision of the PPA provides relief to DC fiduciaries that default participant assets into QDIAs under regulation 404(c)(5). Plan sponsors complying with this provision are responsible for the prudent selection and monitoring of plan QDIAs, but are not liable for any loss that occurs by participants invested in the QDIA.

Is your DC plan’s default investment fund a qualified default investment alternative?

What is your current default investment alternative for non-participant directed monies?

85.5% 74.6% 72.4%

7.7% 5.9%

6.9%

3.4% 3.4% 6.9%

2.6% 11.0% 6.9%

0.9% 3.4% 4.6% 1.7% 2.3%

2015 2014 2013

Other Managed account Target risk Balanced fund Stable value or money market Target date retirement


32.4% 25.2%

23.4% 26.1%

21.6% 23.4%

17.1% 16.2%

4.5% 9.0% 0.9%

0%

25%

50%

75%

100%

2011 2012 2013 2014 2015 Will use in 2016

Other

Don't know

Custom target strategies

Collective trust that isn’t recordkeeper’s

Mutual fund that isn’t recordkeeper’s

Mutual fund or collective trust of recordkeeper

Target Date Fund Landscape

● The target date fund landscape continues to evolve.

● The proportion of plans offering their recordkeeper’s proprietary target date funds continues its decline.

● Surprisingly, 4.5% report not knowing their approach.

If you offer either a target date or target risk fund, which approach do you use?


Target Date Fund Landscape (continued)

● From 2014 to 2015, there was no material increase in the usage of passive, active, or blended (active and passive) target date funds.

What investment approach does your target date fund use?

If action was/is expected to be taken with your target date fund, please describe*


67% took no action with respect to their target date fund

42.5%

34.5%

23.0%

0%

25%

50%

75%

100%

2010 2011 2012 2013 2014 2015

Mix of Index and Active Management

Actively Managed

Indexed

67.7%

22.6% 16.1% 16.1% 6.5% 3.2%

75.7%

16.2% 8.1%

2.7% 2.7% 0.0%

Evaluate suitability of glide path

Change share class of target date fund

Replace target date fund/ manager

Move to a target date collective trust

Eliminate target date fund

Change communication approach to target date fund

2015 In 2016


82.3%

70.8%

40.7%

38.9%

15.9%

5.3%

2.7%

1.8%

88.2%

60.0%

42.7%

n/a

14.5%

9.1%

1.8%

7.3%

85.2%

51.9%

50.6%

n/a

13.6%

1.2%

1.2%

7.4%

Mutual funds

Collective trusts

Separate accounts

Brokerage

Unitized or private label funds

Fixed annuities

Variable annuities

Pooled insurance company separate account

2015 2014 2013

Investment Vehicles

● Mutual funds remain commonplace DC plan options at 82.3%.

● Collective trusts increased in prevalence, with 70.8% of plans offering them in 2015, up from 60.0% in 2014.

Does your plan offer the following investment types within the fund lineup?*


Additional categories (2015 data): Other (2.7%), ETFs (0.0%)


Potential Changes Due to Money Market Regulations

● Nearly half (48.6%) of responding plan sponsors offer money market funds.

● The majority of DC plan sponsors (58.7%) that offer money market funds report that they are still unsure or are evaluating what to do in light of the Securities and Exchange Commission’s 2014 amendments to money market regulations.

Has your plan offered a money market fund any time in the past year?

What actions do you plan to make with respect to your money market fund in light of the implementation of the SEC’s money market reform?

58.7%

17.4%

13.0%

6.5% 4.3% Will change to a government money market fund

(stable NAV)

Will change to a stable value fund

None, have evaluated the money market fund and found a floating NAV and/or liquidity gates are acceptable None, because the money market fund will not be subject to a floating NAV and/or liquidity gates

Unsure/still evaluating

Yes 48.6%

No 47.7%

Don't know 3.6%


Post-Employment Assets

●  43.5% of plan sponsors have a policy for retaining retiree/terminated participant assets.

● Many of the plans seeking to retain assets offer an institutional structure that is more cost effective than what is available in the retail market.

If you have a policy with respect to retaining retiree/terminated assets within the plan, what is that policy?*


53.7%

24.1% 22.2%

15.7%

14.8%

2.8%

37.1%

31.4% 27.6%

20.0%

22.9%

5.7%

No policy Seek to retain retiree assets

Seek to retain assets of terminated participants

Do not seek to retain retiree assets

Do not seek to retain assets of terminated participants

Other/Don't know

2015 2014


53.7%

30.6%

11.1%

11.1%

4.6%

1.9%

58.9%

18.7%

14.0%

8.4%

6.5%

6.5%

74.4%

n/a

9.0%

6.4%

2.6%

5.1%

0.0% 150.0%

None

Access to defined benefit plan

Annuity as a form of distribution payment

Managed accounts/income drawdown modeling services

(e.g., Financial Engines)

In-plan guaranteed income for life product

(e.g., MetLife, Prudential)

Annuity placement services (e.g., Hueler Income

Solutions)

2015 2014 2013

Retirement Income Solutions

What retirement income solution(s) do you currently offer to employees?*


52.9%

26.3%

16.5%

17.9%

12.5%

7.7%

8.9%

47.1%

73.7%

83.5%

82.1%

87.5%

92.3%

91.1%

0.0% 100.0% Likely to offer in 2016 Unlikely to offer in 2016

Longevity insurance


Reasons for Not Offering Annuities

● The top reason is plan sponsors believe it is unnecessary or not a priority. Other key reasons include participants having access to a defined benefit plan and concern over insurer risk.

If your DC plan is unlikely to offer an annuity-type product in 2016, please indicate why by rating the following choices

Weighted Average Score (5=Most important)

Mos

t im

porta

nt

Unnecessary or not a priority 3.9

Availability of DB plan 3.8

Concerned about insurer risk 3.7

Uncomfortable/unclear about fiduciary implications

3.6

Uncomfortable with available products

3.5

Too costly to plan sponsors/participants

3.5

No participant need or demand 3.4

Products are not portable 3.4

Too administratively complex 3.3

Lack of product knowledge 3.1

Difficult to communicate to participants

3.0

Recordkeeper will not support this product

2.3


Fee Policy

● Approximately 45% of plan sponsors have a written, plan-fee payment policy in place, either as part of their investment policy statement (26.3%) or as a separate document (18.2%).

Do you have a written, plan-fee payment policy?

26.3%

18.2%

42.3%

2.2%

10.2% 0.7%

0%

25%

50%

75%

100%

2011 2012 2013 2014 2015

Other

Don't know

No, but plan to in the next 12 months

No

Yes, as a separate document

Yes, as part of the investment policy statement


Fees: Areas of Focus in 2016

● Fee regulations and the number of likely DC fee lawsuits likely continue to influence these focus areas.

● Ensuring that fees are equitable does not rank highly among plan sponsors: excluding “other” responses, it came in last for the third consecutive year.

Rank your key areas of focus around plan fees for 2016. It is important that fees are:

Mos

t foc

us

Reasonable 4.9

Well monitored and documented 4.6

Compliant with 2012 DOL fee regulations 3.3

Well communicated to participants 3.2

The lowest possible 2.8

Equitable (e.g., administration fees are shared equally across all plan participants)

2.7

Other 0.9

Weighted Average Score (6=Most important)


88.1%

5.5% 5.5% 0.9%

Other/Don't know

100% paid by plan sponsor

Fee Payment

How are the plan’s investment management fees paid?

How do participants pay for the administration of the plan?

52.3%

26.6%

20.2%

0.9%

How are the plan’s administrative fees paid?

93.6% at least partially paid by participant

78.9% at least partially paid by participant

29.4% 35.7% 27.0% 36.2%

22.4% 26.2%

33.3% 30.4%

22.4% 22.6% 20.6% 15.9%

20.0% 10.7% 15.9% 13.0%

5.9% 4.8% 3.2% 4.3%

2015 2014 2013 2012

Other/Don't know

Solely as a percentage fee that is assessed across some or all funds outside of the investment management fees Solely through an explicit per participant dollar fee

Through a combination of revenue sharing and an explicit per-participant charge


Revenue Sharing

● Nearly half of plans with revenue sharing (46.6%) indicate that only a quarter or fewer of their funds generate revenue in this manner.

● When only some funds pay revenue sharing, it means administrative payments are not equitably shared among plan participants.

What percentage of the funds in the plan offer revenue sharing or some kind of administrative allocation back from the investment fund?

23.3% 14.6% 10.5% 13.6%

23.3%

16.7% 31.6%

13.6%

9.3%

14.6%

18.4%

15.9%

14.0% 18.8%

18.4%

25.0%

14.0% 25.0% 10.5%

22.7%

2.1% 7.9% 2.3% 16.3% 8.3% 2.6% 6.8%

2015 2014 2013 2012

Don’t know

100%

76% to 99%

51% to 75%

26% to 50%

10% to 25%

<10%


In Conclusion…….What Does the Future Hold?

Discussions have centered on….

•  Use of managed accounts

•  Financial wellness

•  Lineup streamlining

•  Management of “decumulation”

Ques=ons?


Respondent Characteristics

● Two-thirds of the DC plan sponsors surveyed also offer a defined benefit (DB) plan, although over a fourth of respondents indicate their DB plan is frozen.

● Respondents span a wide range of industries. The top industries include government (14%), energy/utilities (13%), health care (9%), financial services (9%), manufacturing (8%), and not-for-profit (8%).

In what industry is your firm? Does your firm/agency offer a defined benefit plan?

Yes 39.0%

Yes, but it is frozen 28.4%

No 32.6%

Other 4.2% Construction and Mining 4.2% Professional Services 4.9%

Retail 5.6%

Technology 6.3%

Insurance 6.3%

Not for Profit 7.7%

Manufacturing 7.7%

Financial Services 8.5%

Health Care 9.2%

Energy/Utilities 12.7%

Government 14.1%

Additional categories: Education 2.8% Entertainment/Media 2.1% Transportation 1.4% Aerospace/Defense 0.7% Automotive 0.7% Telecom 0.7%


401(k) 71.5%

403(b) 11.1%

457 7.6%

401(a) 6.9% Profit Sharing 2.1% Other 0.7%

Respondent Characteristics

● Callan conducted the Defined Contribution (DC) Trends Survey online in September and October of 2015. The survey incorporates responses from 144 plan sponsors, including both Callan clients and other organizations.

● The majority of respondents offer a 401(k) plan (71.5%) as the primary DC plan. Another 11.1% offer 403(b) plans and 7.6% sponsor 457 plans.

● Over 80% of plans in the survey have more than $100 million in assets; more than two-fifths (43.0%) are “mega plans” with greater than $1 billion in assets. The proportion of mega plans is modestly lower than last year’s DC Trends Survey (46.2%).

What is the primary DC plan that you offer?

How many participants are in the primary DC plan?

What is the size of the primary DC plan?

Note: Charts may not sum to 100% due to rounding.

<100 4.2%

100 to 500 8.5%

501 to 1,000 7.7%

1,001 to 5,000 24.6%

5,001 to 10, 000 14.1%

10,001 to 50,000 26.8%

50,001 to 100,000 6.3%

>100,000 7.7%

<$20 million 5.6%

$20 to $50 mm 4.9%

$51 to $100 mm 7.0%

$101 to $200 mm 10.6%

$201 to $500 mm 18.3%

$501 mm to $1 bn 10.6%

>$1 billion 43.0%

ContactInforma1on

AmyK.Parker,AIF®ManagingDirector,FiduciaryConsul=ngServicesNewportGroupHeathrow,FLEmail:[email protected]:407.531.5936

JamesM.Veneruso,CFA,CAIAVicePresidentCallanSummit,NJEmail:[email protected]:908.522.3880

Moderator

Trends in Retirement Plans - SBEN DC trends v3-1.pdf · Department of Labor’s 2011–2012 fee disclosure requirements 5.1 2006 Pension Protection Act 5.1 2008–2009 market collapse

Documents