Cover:Looking to the Stars
concept of looking to the stars to chart a course is certainly not a new one.
Since ancient times, people have relied on astronomy in place of compasses and
The PLANSPONSOR Defined Contribution Survey, now in its 17th year,
acts as a North Star of sorts for retirement plan sponsors—offering direction
by setting the standard in identifying plan-design trends because of its
breadth and depth. Whatever their current method(s) of assessment and
evaluation, plan sponsors have long appreciated the reality that, while every
program may have unique circumstances and constraints, there is value in being
able to compare your retirement plan with a valid set of peers, if only to
ensure your design remains competitive.
Roughly 6,000 responded this year—a decrease from last, maybe
because we were fielding this at the height of fee disclosure activity when
plan sponsors struggled to find time to complete our questionnaire. The
demographics of the respondents were equal parts micro (36.5% of plans have
less than $5 million in assets) and small plans (36.2% have between $5 million
and $50 million in plan assets). Of the rest, 12.8% have between $50 million
and $200 million in assets, and 14.4% have more than $200 million.
Perhaps the most significant finding in this year’s survey was the
general decline in plan sponsor satisfaction. In fact, overall satisfaction is
down across virtually all (22 of 23) categories of service. The only area to
see an increase was participant fee disclosure, and that likely was a byproduct
of the environment more than anything else.
Still, while satisfaction is down, we do have standouts—“stars” of
a sort—in our Best in Class tables, which offer plan sponsors a way to see
which vendors excel at servicing plans of different sizes. On the pages that
follow, we show the vendors rated highest by their plan sponsor clients in
various sponsor and participant services.
Room for Improvement
Despite the progress seen with defined contribution (DC) plans
across many of our statistics, there is still plenty of room for
improvement—especially in preparing employees and plan participants for
retirement. Overall, 72% of respondents either “agree” or “somewhat agree” with
the statement: “Our organization has an obligation to help participants plan
for retirement.” However, although companies might believe they should help
employees plan or save for retirement, the desired outcome—retirement-ready
employees—has yet to occur. Similar to the results seen in the Employee Benefit
Research Institute’s annual Retirement Confidence Survey, only 21% of plan
sponsors “agree” or “somewhat agree” with the statement: “Most of our employees
will achieve their retirement goals by age 65.”
Also, for all the talk in the industry about redefining
benchmarks, the words have yet to resonate with our plan sponsor respondents.
In fact, 29.6% still say they have no formal plan-success measures. Of the
majority who do attempt to calculate the success of their plan, participation
rate (67.9%), deferral rate (29.5%) and the percentage of participants saving
up to the match (20.7%) are still the most common data points. Even with the
industry focus on projected retirement income, only 3.5% of plan sponsors
report using that in their assessments.
Based on the average and median account balances and deferral
rates, it might be a good thing many plan sponsors do not benchmark against
projected retirement income. With an average account balance across all plans
of $63, 180 (median of $50,000), and average and median deferral rates of 6.1%
and 6%, respectively, most participants seem far from a healthy retirement
income replacement ratio.