“[M]ore companies are adding products like lifecycle and target date maturity funds, and structures like automatic enrollment. These innovations allow workers who might not have the time or expertise to skillfully manage their own investments to outsource some important decisions to professional investors in a manner reminiscent of that available to participants in traditional DB plans,” said Greenwich Associates consultant Chris McNickle, in the report.
The report said that while nearly 55% of defined contribution plan sponsors provide their participants with an Internet advice tool, less than a quarter of their participants have ever used them. Rather than spending more money on additional education efforts, sponsors are utilizing automatic enrollment (See Auto Plan Features Increasingly Used to Push Employee Saving) and lifecycle or target date funds (See Special Report: LIFESTYLE FUNDS: Easy Does It? ) to eliminate decisions for employees altogether.
A growing proportion of US companies – currently one in five – are using automatic enrollment structures that remove from their employees the onus of signing up for their defined contribution plan, and another 16% expect to adopt automatic enrollment in the future, GA found.
In addition, more than 55% of plan sponsors are currently offering lifecycle funds, and an additional 27% are considering adding these products to their plan options. While only 17% of US plan sponsors offer target date maturity funds, another 20% are now contemplating adding these products, the report said. Nearly one in five plan sponsors offer their participants a managed account option through which participants have access to a professional investment advisor who will provide counsel and even make some key investment decisions for them.
Additional findings GA reported include:
- Nearly three-quarters of US DC plan sponsors say they reviewed fees with their provider in the past 12 months, and of those, nearly half negotiated a fee reduction. About half of corporate funds pay less than 50 basis points in annual fees to maintain their DC plans. Another 30% of plan sponsors pay annual fees between 50 and 100 bps. (See Invesmart Plan Fee Benchmark Set at 57 bps )
- More than two-thirds of US plan sponsors currently use institutional mutual funds in their 401(k) plans. The proportion of plan sponsors saying they plan to use retail funds dropped by 25% between 2004 and 2005 while the proportion expecting to use institutional funds remained stable at 66%.
- Nearly 85% of all plan sponsors have written investment policies in place for their DC plans (See Survey Finds More Sponsors Minding Governance Ps and Qs ).
- Although lifecycle funds and target date maturity funds are being added by many defined contribution plan sponsors, average DC portfolio allocations changed little over the past year. The average DC portfolio holds only 7% of its assets in international equities. Between 10% and 15% of plan sponsors say they are adding small and mid-cap value or small-cap growth funds to their investment options in the next two years, and 18% say they plan to add a madcap growth fund. That is in addition to the 70% to 80% of plan sponsors that already offer these options. About 13% of U.S. companies currently offer REITS or other real-estate investments through their 401(k) plans, and another 16% expect to add the product in the next two years.
- Among pension professionals, average total cash compensation increased from $102,600 in 2004 to $104,200 in 2005. This increase in total compensation reflects a 3.5% increase in salary and a nearly 20% jump in the bonuses of eligible recipients. In 2005, the average bonus reached a high-water mark of $26,000. Among 172 Pension or Benefit Managers, average total compensation increased from $82,100 in 2004 to $83,800 in 2005. The average bonus for the 71% of eligible managers also increased, reaching $12,900 in 2005. Among 127 Human Resource Directors or Managers, two-thirds are eligible to receive bonuses. Increased salaries and bonuses raised the average total compensation to $111,100 in 2005.