Advice Offerings Expand in 2004

December 9, 2004 ( - Along with a growing number of fund choices, plan sponsors were more likely to offer participants access to advice in 2004 than a year ago.

Nearly half (49%) of plan sponsor respondents now offer that service to participants, up from 43% a year ago, and just 37% in 2002, according to PLANSPONSOR’s Eighth Annual Defined Contribution Services Survey. It may be premature to describe the current status as a “tipping point” in terms of offering participant advice, but the trend line is impossible to ignore.

Yet another dynamic is, no doubt, accelerating the trend: the expanding role of the DC service provider itself in providing access to financial advice. Indeed, nearly a quarter of the plan sponsors providing participants with access to investment advice do so via their DC services provider, compared with 16% doing so via a financial planner/advisor outside the plan, and just 7% through a third-party advice provider (although a number of the DC providers do rely on the support of those third parties).

Taking Stock

Despite the expanding availability of financial guidance, participants were still inclined to overinvest in company stock, by most standard measures. Among plans where company stock was offered, nearly 27% of participant balances were so directed, up from 25% in 2003. Ironically, the smallest programs appeared to be the worst culprits – but that was strongly influenced by the presence of Employee Stock Ownership Plans (ESOPs), most with closely held securities, in that segment.

Among strategies to expand participation further, automatic enrollment appears to be enjoying a resurgence, with nearly 20% now employing the strategy of requiring participants to “opt out” of participation, rather than requiring an affirmative election. Larger plans were more likely to do so, but the trend was higher across all market segments.

Another powerful motivator – the company match – looks to be in good shape as well. Only half as many of the nearly 4,000 plan sponsor respondents were planning to make a change here as a year ago, and for the very most part, they planned to increase it.

More than a quarter (28.4%) provided an immediate 100% vesting of the company match, including a whopping 40% of the plans with more than $200 million in assets.