Participants Have More, But Don't Appear to be Taking Advantage

November 19, 2003 ( - Participants have more investment options available to them than they did a year ago - but they don't appear to be taking advantage of it, according to PLANSPONSOR's seventh annual Defined Contribution Survey.

A year ago, the average number of fund offerings was 15.94, but it ticked up to 16.68 in this year’s survey of more than 3,200 plan sponsors. However, despite access to additional funds, participants continued to invest in just 4.64, on average, compared with 4.65 a year ago (see Image Conscious ).

Advice “Slice”

Employers are clearly responding to employee concerns about their retirement investments. Nearly half, 43.5%, of this year’s employer respondents offered participants access to investment advice, an increase from the 37% who did so in 2002. Smaller programs were noticeably more likely to provide access to financial advice than larger plans.

Another emerging trend was found in that 41% of those employers offering participants access to advice are doing so through their defined contribution providers – a trend likely related to the burgeoning number of providers that have crafted advice solutions compatible with the Department of Labor’s so-called SunAmerica decision in December 2001, which indicated that it is okay for plan providers to offer investment advice, even on their own investment products, as long as that advice is generated by an independent third-party vendor.

Just 26% of the plan sponsor respondents currently offering advice do so from the major online advice providers – combined, while a comparable 25% do so from a planner outside the plan, and 13% from another source. Nearly two-thirds (61.7%) of plan sponsors that offer advice pick up the tab for the service.

Plan Designs

Another option widely touted as a participation driver is automatic enrollment, though only 18% of this year’s respondents offered such a program, roughly the same percentage as in last year’s survey. Larger plans were noticeably more inclined to do so than smaller programs. More than a quarter of plans with more than $500 million in assets did so, while, a year ago, less than one in five of that size did.

Similarly, self-directed brokerage accounts (SDBAs) continued to be offered by roughly one in four plan sponsors, while one in five made that option available via the Internet.

Enron does not appear to have had much impact on the presence of employer stock in these programs. Holdings of company stock were slightly less common-offered by just 12.1% of this year's respondents, compared to 14.7% in last year's survey. However, the average percentage participant investment in that asset class rose to 25% among 2003 survey respondents from just 21.8% a year ago, and constituting 12.3% of the total outstanding shares rather than the 9.3% reported in last year's data.

A growing number of providers have emerged touting their ability to offer an investment policy product, and one might well have expected to see a rise in the number of employers with a written statement of investment policy. However, the number with one already in place remained almost unchanged from a year ago, with only about two-thirds of plan sponsors reporting having one in place. Larger plans were more likely to have one (81% of the largest programs did), but less than 60% of plans with less than $5 million in assets did.

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