Benefits of Asset Retention for DC Plans and Participants

August 28, 2012 ( - Gay Lynn Bath, deferred compensation manager for the State of Oregon, believes it is in participants’ best interest to keep assets in their defined contribution (DC) plans.

By Rebecca Moore | August 28, 2012
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She cites a good mix of diversified investments, professional investment oversight, low fees and the ability to roll other savings into their plans to keep assets in one place as some of the reasons.  

Speaking at a webcast sponsored by the National Association of Government Defined Contribution Plan Administrators (NAGDCA), Bath noted that some participants take their money out of the plan because they think they have to and some want a financial adviser. She said the State of Oregon provides education to participants about keeping their assets in the plan and has implemented a no-fee transition counseling service provided by its recordkeeper.  

Alison T. Borland, vice president of Retirement Strategy and Product Development at Aon Hewitt, said DC plan sponsors should not only focus on decreasing outflows from the plan but also increasing contributions and rollovers into the plan. The benefits of keeping assets include fee savings and increased purchasing power for the plan; improved access to solutions both for plan sponsors and participants because of plan scale and ability to procure solutions from different providers; participant access to unbiased, trusted help that is catered to benefiting them; and more savings for participants in reduced fees and tax benefits.  

According to Borland, fee differentials for participants can be 25 basis points through better leveraging of solutions due to the scale of the plan; that is the same value as contributing 0.5% of additional pay throughout the employee’s career. In addition, more scrutiny by sponsors of investments leads to the use of an institutional approach resulting in lower fees and commingled funds and separate accounts, not just mutual funds. Commingled funds and separate accounts can lead to a 32% to 43% savings for participants, depending on the asset class of investments.