The use of outside investment consultants rose to include 45% of respondents to the 2004 survey, according to Deloitte, up 10% from 2003. This, combined with recent publicity surrounding mutual fund scandals, has resulted in a large number – 37% – of respondents replacing at least some of their mutual fund holdings in the past year; an additional 5% are considering making changes. Twelve percent of plan sponsors cited the mutual fund scandal as the reason for the shift.
There has also been a increase in fee transparency, a
likely result of the scandal. Ninety percent say they have
a good understanding of their plan’s fees, and 84% say they
understand the normal fund operating expenses. However,
less than 60% claim to understand the revenue sharing
agreements in place at their mutual fund companies.
“The past few years have challenged most plan sponsors to take a closerlook at their retirement programs, as well as their fiduciaryresponsibilities,” said Leslie Smith, director of the annual survey and adirector in the Human Capital Total Rewards practice of DeloitteConsulting. “Fee transparency is another area thatwill require more attention from plan sponsors as they demand greaterdetail from the providers and venders that serve them.” She adds thatthere is much more to 401(k) plan fees than what is being directlycharged to the plan, and the well-informed plan sponsor will understandall of the revenue streams involved.
Participation Rates Still Stagnant
Still, with all these changes, plan participation has not increased above its 73% level, Deloitte asserted. Around 13% of plan sponsors said they will add automated enrollment features in hopes of upping their participation numbers and 15% already have such a program. Automated rebalancing is also on the rise with 35% of plans now offering such a feature, up from 24% in 2003.
“Easy Enrollment” options have also taken hold, with around 10% of respondents using such a system currently and 9% considering adding it in the future. According to Deloitte, this feature, along with “step-up contribution” features, can aid in increasing participation rates. Fifty-seven percent of respondents to the survey cited increasing participation as the main reason for introducing such programs.
The study – the 2004 Annual 401(k) Benchmarking Survey – was conducted last summer of human resources and employee benefits executives across the country. In total, 426 plan sponsors responded to the survey. For a detailed copy of survey results, go here .