Poll: Plan Scrutiny Kicks K Plan Sponsors into Greater Activity

As a result, theDeloitte 2003 Annual 401(k) Benchmarking Survey found, plan sponsors are more actively poring over their plan’s investment performance and turning an even more scrutinizing eagle eye to their plans’ fees.

The number of plan sponsors benchmarking how well their investments did on a quarterly basis jumped to 55% in the latest poll, up from 47% last year. There was also a dip (to 83% this year from 87% a year ago) in the number of sponsors labeling their plan fees “competitive.” That finding, Deloitte said, suggested “that employers may be applying a tougher standard in this area.”

“We expect this trend to be gaining momentum following recent trading misconduct activities by some prominent investment management organizations,” asserted Leslie Smith, director of the annual survey and a director in the Deloitte Human Capital Total Rewards practice, in a statement. “While few employers were asleep at the switch, it appears that their attention has been concentrated by recent events, which is a positive development.”

The survey also picked up a greater chunk of employers offering targeted participant communications – a 12% hike – bringing the overall increase in the use of customized education to 25% since 2001.

“Clearly, employers are trying to do more to ensure that employees understand their options and are using their 401(k) plans appropriately,” said Joe Kelly, national leader of the Total Rewards practice, in the Deloitte announcement. “This is not surprising, considering that even with this year’s healthy stock market performance; most participants haven’t recouped losses sustained in the equity portion of their 401(k) portfolios since 2000.”

Nevertheless, the 2003 survey suggests that 401(k) participants have settled down after the financial scandals and down equity market performance; overall participation rates hovered around 75% – unchanged from 2002.

Digging a little deeper into the plans, employers overwhelmingly (96%) believe participants are satisfied with their plans’ investment options – up from 93% last year. But, perhaps consistent with the trend toward tougher scrutiny of plan performance by sponsors, the percentage of employers expressing satisfaction with plan investments this year was seven percentage points below that of employees.

The survey, incorporating detailed responses from 690 401(k) sponsors representing a cross-section of sizes, regions, and industries, also revealed that:

• some 24% of plan sponsors offer their participants the fairly new feature of automatic fund rebalancing
• fewer than 40% of plans offer investment advice/counseling, less than a quarter of participants in those plans use it, and less than one-third of those who use it actually act upon the advice provided
• more employers are offering both fixed and discretionary components to their matching contributions
• a trend toward easing participation eligibility restrictions based on employment tenure and age is still in force.

The survey, conducted in June and July 2003, was sent to human resources and employee benefits executives nationwide. Data was collected via both hardcopy and Web-based questionnaires. In all, 690 plan sponsors responded to the survey.   A detailed copy of the results is available  here .