Seeking the Best Outcomes
DB plan sponsors continue to hunt for the ideal partner in a complex market
THE DEFINED BENEFIT (DB) industry is not necessarily known for innovation. The industry long ago solved several issues that are spurring change in the defined contribution (DC) space such as under-enrollment and lifetime income. The innovation occurring today in DB plans appears to play out in opportunities for sponsors to better manage their own risk, through pension risk transfer, or more focused plan design such as cash balance plans.
Overall, the DB market has continued its graceful fade as measured against the DC industry, but plan administrators remain successful in chasing down opportunities that remain. For example, the 18 providers that responded to our PLANSPONSOR Defined Benefit Administration Survey, both this year and in 2014, the last time we ran it, saw plan counts increase significantly, from 8,805 to 10,751. According to Brian O’Keefe, PLANSPONSOR’s director of research and surveys, “This may suggest a concentration of plans among the more committed providers or ref lect the growth in DB and cash-balanceplan use among small plans.”
Perhaps surprisingly, the percentage of clients bundling DB and DC plans has dropped, from 31% to 25%. At the same time, the percentage of plans where the administrator also does actuarial work also dropped—from 53% to 41%, O’Keefe says. “In a world of consolidation and simplification, one might expect such numbers to increase as provider choice decreased, but we don’t see that in the data.”
DB plan administration providers have made subtle changes to participant-service capabilities over the past five years as companies seek to improve efficiency and, likely, profitability in the business. For example, fewer providers reported offering online, phone and on-site planning and distribution advice. The percentage of interactions done on the web, as reported among providers in both 2014 and 2019, has only grown incrementally, and several providers are still well below 90%, he says. The reported percentage of clients with access to online calculations remains unchanged among respondents to both years’ surveys.
“On a review of the survey results,” O’Keefe says, “providers appear to be rationalizing sponsor service strategies. On one front, several providers have expanded third-party relationships related to administration, investments, actuarial and other consulting/compliance services, but a smaller group has gone the other way showing clear evidence of a focus on developing more internally sourced capabilities. Interestingly, the companies that didn’t report a change in their sponsor service strategy are among those with growth in outcomes—growth in numbers of participants.”
Sponsors appear to remain loyal to their DB providers. More than half (56%) have been with theirs for over a decade. If a sponsor plans to change providers, delving into the survey that follows can inform it of its options; for sponsors that are satisfied, the findings can ensure they maximize the relationship they have. —PS