Research

Art by Julianna Brion

2016 PLANSPONSOR DC Survey: Plan Benchmarking

Published in PLANSPONSOR January 2017

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PLAN OUTCOMES

Median Participation Rate

86%  
84%  
88%  
All Plans
<$10MM
>$100MM

Median Average Account Balance

$65,000  
$50,489  
$82,581  
All Plans
<$10MM
>$100MM

Median Average Deferral Rate

6.5%  
5.6%  
7.0%  
All Plans
<$10MM
>$100MM

Median Average Number of Investment Options

20
21
17
All Plans
<$10MM
>$100MM
 

DEMOGRAPHICS

86%
90%
80%
11%
8%
19%
12%
5%
24%
19%
18%
17%
10%
2%
31%
401(k) plans
403(b) plans
457 plans
Profit-sharing plans
Nonqualified plans
All Plans
<$10MM
>$100MM

It comes as no surprise that 401(k) plans dominate the retirement savings industry. Profit-sharing plans are offered by about 20% of all employers, but more employers in the high plan-asset group are apt to offer 403(b) and 457 plans. Conversely, nonqualified plans are virtually nonexistent in the small market—found at only 2% of those employers.

BENEFITS OFFERINGS

30%
22%
53%
48%
35%
70%
10%
4%
21%
47%
28%
75%
DB Plan
HSA
Workplace 529
Tuition reimbursement program
All Plans
<$10MM
>$100MM

Larger companies tend to provide a wider range of benefits to help employees achieve various financial goals. Tuition reimbursement programs and health savings accounts (HSAs) are the most common benefits, but larger employers are at least twice as likely to offer such programs as are smaller ones. Defined benefit (DB) plans and workplace 529s are each offered by less than a third of employers.

PLAN DESIGN

49%
60%
36%
65%
62%
69%
50%
37%
70%
Safe habor plan
Roth provision
Systematic withdrawals allowed at retirement
All Plans
<$10MM
>$100MM

Sponsors face many choices in terms of plan design, and certain features appear to have more universal appeal than others. For example, Roth provisions show fairly consistent adoption across plan sizes, but smaller plans are more apt to leverage safe harbor protections than are larger plans (60% vs. 36%) while larger plans will more likely support systematic withdrawals (70% vs. 37%).

PARTICIPANT LOAN OPTIONS

79%
72%
90%
25%
10%
51%
Plan includes a loan provision
Plan allows loans to be repaid post-separation
All Plans
<$10MM
>$100MM

Loan provisions offer participants flexibility to deal with short-term financial issues, so it is unsurprising that most plans (over 70%) allow loans. To reduce the potential for loan defaults at separation, a slim majority (51%) of large plans now allow participants to continue paying back loans postemployment. Conversely, few small plans (10%) allow this.

PLAN ELIGIBILITY

37%
21%
69%
40%
41%
26%
24%
38%
5%
Eligible immediately upon hire
Eligible within 12 months
Eligible after 12 months or more
All Plans
<$10MM
>$100MM

The Government Accountability Office (GAO) has noted that immediate eligibility can have a positive impact on a participant’s total retirement savings. Employees at large plans stand to benefit more—69% of their employers offer immediate eligibility— than do those at smaller plans, where 38% require one or more years of employment to qualify for eligibility.

AUTOMATIC FEATURES

42%
27%
62%
66%
54%
80%
42%
34%
50%
35%
18%
64%
Uses auto-enrollment
Uses a TDF as the default investment
Has a default deferral rate >3%
Uses auto-escalation
All Plans
<$10MM
>$100MM

Automatic enrollment and escalation are often praised as a means for improving plan outcomes, but fewer small-plan sponsors have implemented auto-enrollment (27%) and auto-escalation (18%) than their larger peers (62% and 64%, respectively). Smaller plans are also less likely to use target-date funds (TDFs) as their default investment (54%) or have default deferral rates above 3% (34%).

EMPLOYER CONTRIBUTION

75%
69%
83%
35%
32%
43%
31%
18%
50%
34%
26%
47%
Offers employer match
Offers immediate vesting of match
Will true–up match
Offers total employer contribution >6%
All Plans
<$10MM
>$100MM

Employer matches are very common among all plan sizes, but larger plans are almost twice as likely to have a total contribution of over 6% than are smaller plans (47% vs. 26%). Larger plans are also more apt to have participant-friendly match strategies such as immediate vesting of matching contributions (43% vs. 32%) and to offer “true-up” matches (50% vs. 18%).

ADVICE OFFERINGS

76%
75%
73%
16%
12%
28%
33%
24%
43%
41%
45%
25%
50%
33%
74%
Some investment advice offered
Advice delivered via 3rd party
Advice delivered via recordkeeper’s proprietary tools
Advice delivered via financial adviser/planner
General financial education offered
All Plans
<$10MM
>$100MM

Three-fourths of all plans offer advice, but the source of that advice differs by plan size. Small plans rely on financial advisers or planners (45%) while larger plans, with a distributed work force, depend on recordkeepers (43%). General financial education—e.g., budgeting, debt management, etc.—is more prevalent in large plans (74%) than in small plans (33%).

INVESTMENTS

65%
47%
88%
89%
84%
96%
19%
9%
39%
61%
46%
80%
Has investment policy statement
Offers index funds
Offers self-directed brokerage window
Has average expense ratio <75 bps
All Plans
<$10MM
>$100MM

Index funds are now offered in almost all plans, but other investment trends are still split by market size. Larger plans seem far more likely to have lower investment expense ratios, investment policy statements (IPSs), and specialized investments such as self-directed brokerage windows than their smaller counterparts. It merits watching whether or when trends such as these will migrate down-market.

PLAN ADMINISTRATION FEES

58%
43%
78%
22%
13%
36%
43%
30%
62%
Calculated provider fees in past 12 months
Has fee equalization policy
Uses expense reimbursement account
All Plans
<$10MM
>$100MM

Fees have received much focus in recent years, so it is somewhat surprising that fee-related practices still differ by plan size. Smaller plans are less likely to review or benchmark administrative fees on an annual basis and have been slower to adopt common fee-tracking and allocation tools such as use of expense reimbursement accounts and fee equalization policies.

ADVISERS

68%
59%
76%
41%
26%
56%
17%
15%
15%
Uses financial adviser/consultant
Has a 3(21) adviser
Has a 3(38) adviser
All Plans
<$10MM
>$100MM

The majority of plans report using an adviser or consultant, but less than 20% are Section 3(38) fiduciaries—i.e., investment managers for the plan. Among non-3(38) fiduciary advisers, only about 41% are 3(21) fiduciaries, taking fiduciary responsibility for the recommendations they make.

SPONSOR SENTIMENT/BEHAVIOR

31%
26%
39%
34%
20%
54%
72%
57%
89%
Is confident employees will reach retirement goals by age 65
Prefers terminated-employee assets remain in plan
Measures/Monitors plan success
All Plans
<$10MM
>$100MM

Do the differences between large and small plans translate to sponsor sentiment? Data suggests yes—large-plan sponsors have higher levels of retirement confidence, appear more engaged based on their measuring and monitoring of plan success, and seem more willing that all assets from terminated employees stay in the plan.

Survey Intro

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Benchmarking, as a concept, depends on having two comparable sets of data that can then be used to identify differences. Although simple in some contexts, benchmarking your defined contribution (DC) plan can prove challenging—and costly—because of the difficulty in finding relevant data on plans similar to yours. And, as you know, it is critical to find a reliable and representative data source for your benchmarking efforts.
 
Fortunately, we can help. For almost 20 years, the annual PLANSPONSOR DC Survey has gathered plan design data from plans of all sizes—from those with less than $1 million in total plan assets to those with more than $1 billion—and representing a wide range of industries, geographies and providers. Stated differently, we believe it is one of the most flexible and trusted sources of benchmarking trend data in the industry.
 
While many different factors can influence plan design choices and outcomes, one of the most frequently cited is plan size. Larger plans frequently have more resources—e.g., staff and capital—to support more complex plan designs than their smaller peers. Therefore, larger plans tend to be harbingers of trends that eventually move down-market. For example, in 2008, about one-third (35.9%) of larger plans and about one-eighth (13.3%) of smaller plans offered automatic enrollment, but today both percentages have nearly doubled—to 67% and 27%, respectively.
 
Whether your plan is large or small or somewhere in between, the charts and tables on the following pages can help you understand how your plan design compares with thousands of others. The data highlights areas where adoption of a given plan feature is largely split between small plans (less than $10 million in plan assets) and large (more than $100 million in plan assets). We encourage you to use these survey results as a regular part of your plan evaluation process and hope you will gain a better understanding of industry trends. —Brian O’Keefe

Methodology

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The data that follows summarizes the analysis of 4,218 qualified responses to the 2016 PLANSPONSOR Defined Contribution (DC) Survey. The survey was fielded between early July and mid-September 2016 and gathered data covering more than 50 aspects of plan design, investment offerings and participant/sponsor services. The results have been published in two parts: The DC provider ratings appeared in PLANSPONSOR this past November, and the plan benchmarking results appear here. Benchmarking is reported by total plan assets; further data is available and can be reported by industry and other asset ranges. Please contact Brian O’Keefe, at brian.okeefe@strategic-i.com, for additional information and pricing.

Archive

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DEFINED CONTRIBUTION SURVEY - Industry Trends

PLANSPONSOR's Defined Contribution Survey - Industry Trends gathers data from thousands of plan sponsors about their plan design and administration, providing industry benchmarks. The survey is a study in contrasts and a demonstration of some surprisingly striking similarities among plans of varying sizes.

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