Greenwich Finds DB Bundling, Advice Trend Higher at Mid-Size Plans

February 10, 2003 ( - A growing number of plans with between $25 million and $250 million in assets are bundling their defined benefit offerings and offering participants investment advice - but plan sponsor pay boosts are likely to be modest, according to new research.

The primary motivation for hiring a bundled DB services provider, according to pension funds interviewed by consultant Greenwich Associates is “efficiencies and cost savings.” The next highest-rated factor was “improved quality of vendor management and overall service, while “easier management for pension fund staff” was the least important criteria.

Cash balance programs have room to grow in the space.   While just 4% of companies in the $25-$250 million pension asset group are using cash balance plans, among larger plans (those with assets of $201-$250 million), as many as 15% do so, according to Greenwich.   Technically, a cash balance plan is a defined benefit plan, funded by employer contributions and with benefits insured by the Pension Benefit Guaranty Corporation (PBGC).

DC Sides

On the defined contribution front, Greenwich research found that more than half (55%) of the plans with between $25 and $250 million in assets now offer an internet tool for participant education, and that nearly a quarter (22%) of those who do this also provide advice over the phone or through advisors (either in person or at seminars.)

Three-fourths of the plans that offer Internet advice use their 401(k) providers to deliver it, while somewhere between 20% and 35% either additionally or exclusively make use of outside entities such as Morningstar, Financial Engines, and mPower.

Fund Options

More than 85% of the responding defined contribution plans already offer large-cap value, large-cap growth, and international equity funds, and more than 70% are offering balanced, small-cap growth, and small-cap value funds, as well as actively managed core equity, 15% are seriously looking at adding a so-called “lifestyle” asset allocation fund.   As many as 40% of larger plans already offer this option, according to Greenwich.

Additionally, 12% are eyeing a small-cap value fund and 8% are considering the addition of a small-cap growth fund.   Just 8% are contemplating a self-directed brokerage window.

However, just 40% of funds in the $25-$250 million range currently offer a passive domestic equity option, though the majority (70%) of the funds with more than $250 million in assets do presently.

Pay Scale

As for plan sponsor pay, average salary increases for professionals at plans with assets of $25-$250 million were small in 2002, according to Greenwich, and bonuses averaged just over 20% of salaries.

The findings were based on interviews with senior fund professionals at 913 pension funds with between $25 million and $250 million in total assets across the United States during September and October 2002.