2020
DC Survey: Plan Benchmarking

2020 Survey

Plan Demographics

Retirement Plan Offerings

401(k)
89%
403(b)
10%
457
9%
Profit sharing
19%
Nonqualified
11%
Any other
9%

Percentage of Responses, by Asset Range

<$5MM
29%
$5MM – $50MM
39%
>$50MM – $200MM
14%
>$200MM
19%

Safe Harbor Plans

All plan sizes
55%
<$5MM
70%
$5MM – $50MM
56%
>$50MM – $200MM
45%
>$200MM
39%

 


Impact of COVID-19

The economic impact of the pandemic reverberated through sponsor and participant behaviors on a limited scale. Average plan participation rates are slightly higher than last year, while average participant deferral rates have moved lower, perhaps due to changes in participant composition from layoffs or furloughs. While some employers (7%) have reduced or suspended matching contributions, most of them are in the midsize plan category—i.e., with $25 million to $100 million in plan assets. Overall, 59% of employers that did reduce/suspend their match hope to reinstate it in Q1 2021.

Plan Outcomes

Overall Participation Rate

All plan sizes
<$5MM
December 2019
79.3%
74.3%
June 2020
80.1%
74.5%

Overall Deferral Rate

All plan sizes
<$5MM
December 2019
7.6%
7.2%
June 2020
7.4%
6.6%

Match Suspensions, by Plan Asset Size

All plan sizes
7%
<$5MM
5%
$25MM – $100MM
12%
>$100MM
7%

When Match Suspensions Will Be Reinstated

End of 2020
21%
Early 2021 (Q1 – Q2)
38%
End of 2021
13%
2022 or later
3%
Unsure
25%

 


Impact of Headline Topics

Besides the pandemic creating headlines this year, recent and proposed legislative and regulatory changes may prompt sponsors to take action in two areas they have been slow to materially accept: environmental, social and governance (ESG) investing and in-plan retirement income solutions. Both are used by fewer than one in eight defined contribution (DC) plans, and it is unclear what effect these regulatory changes will have on sponsor interest. Programs to help employees manage student loan debt have also interested sponsors, with adoption having doubled since 2017.

Plans Offering ESG Investment Options

2017
12%
2018
8%
2019
11%
2020
11%

Plans Offering a Student Loan Repayment Program

2017
2%
2018
3%
2019
3%
2020
4%

Plans Offering an Income Creation Product/Strategy

2018
2020
Systematic withdrawal plan (SWP)
45%
48%
In-plan insurance-based product that guarantees monthly future income*
10%
11%
In-plan managed account provision that also helps with retirement income
27%
32%
Out-of-plan annuity purchase/bidding service
5%
7%
*E.g., QLACs [qualified longevity annuity contracts]; GMIB [guaranteed minimum income benefit] and GMWB [guaranteed minimum withdrawal benefit] products; fixed/variable annuities; etc.
E.g., Financial Engines Income+, Morningstar Income Secure, etc.
E.g., Hueler Income Solutions, etc.

 


Automatic Features

Adoption of automatic enrollment and automatic escalation continues to rise—now at 51% and 46% respectively, vs. 48% and 23% last year. Yet, their future growth may depend on acceptance among smaller plans—i.e., those having under $50 million in plan assets. Less than 50% of those plans have implemented either feature vs. the more than 75% of plans with over $200 million that have implemented one or both. When offered, target-date funds (TDFs) remain the dominant default investment option, as usage increased for the fifth year in a row and now stands at 76%.

Plans Using Automatic Features

Auto-Enrollment
Auto-Escalation
All plan sizes
51%
46%
<$5MM
27%
22%
$5MM – $50MM
50%
39%
>$50MM  – $200MM
69%
60%
>$200MM
76%
80%

Average Plan Participation Rates, by Features Offered

Auto-enrollment and -escalation
88.5%
Auto-enrollment only
81.5%
Auto-escalation only
67.4%
No “auto” plan features
73.1%

Trend in Plans Using a TDF for the Default Investment

2015
62%
2016
66%
2017
69%
2018
73%
2019
74%
2020
76%

 


Default Deferral Rate

Many factors influence participant outcomes, but savings rates are often viewed as one of the best measures of long-term success—participants who save more stand to accumulate more over time. Because of this, it is encouraging to see that automatic enrollment continues to push savings rates higher: The percentage of defined contribution plans with a default deferral rate over 3%, a common benchmark, reached 52% this year—an all-time high. Not surprisingly, higher default deferral rates are also correlated with higher average overall participant deferral rates.

Default Deferral Rate

  • ≤2%
  • 3%
  • 4%
  • 5%
  • ≥6%
  • Other

Plans With a >3% Default Deferral Rate

2014
42%
2015
41%
2016
42%
2017
47%
2018
48%
2019
48%
2020
52%

Average Participant Deferral Rate, by Default Rate

<3%
6.2%
3% – 5%
7.3%
>5%
8.4%

 


Match Features

Offered in 73% of all defined contribution plans, matching contributions are a popular way for employers to supplement participant retirement savings. However, use of matching contributions slid for the second consecutive year, down from 77% in 2018. The largest decrease is found among plans with under $5 million in assets; of these, 64% offer a match, vs. 73% in 2018. Still, employer match features continue to get more participant-friendly. For example, 41% of employers now offer a “true up,” and 80% make match contributions each pay period—both up from last year.

Plans Offering Employer Match

All plan sizes
73%
<$5MM
64%
$5MM – $50MM
74%
>$50MM – $200MM
76%
>$200MM
81%

Plans With ‘True-up’ Match Provision

  • Yes
  • No
  • Don't Know

Other Match Provisions

Plan matches catch-up contributions
66%
Match subject to limits/caps
26%
Match paid each pay period
80%



Match Structures

Employers often use match strategies—e.g., match structures, match rates, vesting schedules, etc.—to incentivize certain participant behaviors. About half (47%) of plans use a stretch or tiered match formula, which requires participants to defer more to receive the maximum match, but only 7% of plans will match participant contributions that exceed 6% of salary. Employers also use vesting schedules to reward longer-tenured employees, but immediate vesting is increasingly viewed as a valuable tool in attracting new talent and is now used by a record 41% of plans.

Match Strategy

  • Traditional – e.g., 100% of first 3%
  • Stretch – e.g., 50% of first 6%
  • Tiered – e.g., 100% of 3%, plus 50% of next 2%
  • Fixed dollar – e.g., 50 cents per dollar contributed
  • Multiple formulas
  • Other type of formula

Maximum Employer Match Rate

<3%
11%
3%
22%
4% – 6%
55%
7% – 10%
4%
>10%
3%
Other
4%

100% Vesting in the Match Available

  • Immediately
  • In ≤2 years
  • In 3 – 5 years (cliff)
  • In 3 – 5 years (graded)
  • In ≥6 years

 


Oversight

When it comes to plan governance practices, larger plans—i.e., with over $50 million in plan assets—tend to have the most. Almost all have either an investment committee or investment policy statement (ISP), with 90% having both, whereas fewer (<67%) micro plans—i.e., those with under $5 million—have either. Overall, both investment committees and ISPs were more common this year across nearly every plan size. Plans contracting 3(16) fiduciary services, where a third party assumes responsibility for certain plan administration decisions, was largely unchanged from last year’s findings.

Plan Has an Investment Committee

All plan sizes
77%
<$5MM
46%
$5MM – $50MM
82%
>$50MM – $200MM
97%
>$200MM
97%

Plan Has an IPS

All plan sizes
84%
<$5MM
67%
$5MM – $50MM
84%
>$50MM – $200MM
95%
>$200MM
94%

Plan Employs a Third-Party Administrator as 3(16) Fiduciary

  • Yes – TPA has broad scope
  • Yes – TPA has limited scope
  • No – TPA is not a 3(16) fiduciary

 


Fees

Plan fees remain a top concern of sponsors, as evidenced by the fact that 78% have calculated plan administrative fees during the prior plan year. Benchmarking of these fees also remains popular, with 51% of plans having done so. The allocation of administrative fees has changed little in the past four years; participants continue to bear the most responsibility for recordkeeping fees. But participants also continue to benefit from falling investment management fees: 70% of plans now have an average asset-weighted expense ratio of less than 0.50%, a notable increase from the 54% in 2017.

Calculated Administrative Fees in the Past 12 Months

Yes, and ­benchmarked fees
51%
Yes, but did not benchmark fees
27%
No
22%

Who Pays Recordkeeping Fees

  • Plan only – via participant accounts
  • Employer only – paid outside of plan
  • Both plan and employer
 

Average Asset-Weighted Investment Expense Ratio

  • <0.25%
  • 0.25% – 0.50%
  • >0.50% – 0.75%
  • >0.75% – 1.00%
  • >1.00%
 

 


Participant Education and Advice

The COVID-19 pandemic has elevated the perceived importance of investment advice and financial wellness offerings. This year, a record 85% of plans now offer some form of investment advice. Financial education was also more common and is now offered in 74% of plans, up from just 56% in 2017. Nearly all types of financial education saw year-over-year increases in their accessibility. Such growth is fueled in part by the near universal belief sponsors have in the benefits of financial wellness programs: Over 95% agree that such programs are “very useful” to participants.

Investment Advice Offerings

One-on-one meetings with adviser
52%
Independent third-party services
30%
Recordkeeper’s proprietary offerings
47%
Other source
3%
No ­investment advice
15%

Types of Financial Education/Guidance Offered

Saving strategies
53%
Investing basics
49%
Rolling into plan – for new hires
42%
Rolling out of plan – for separating workers
37%
Credit/Debt management
32%
College saving
27%
Home buying
17%
Do not offer financial education
26%

When Offered, Financial Wellness Programs Are Very Useful to Employees/Participants

Agree strongly
38%
Agree moderately
37%
Agree slightly
20%
Disagree slightly
3%
Disagree moderately
1%
Disagree strongly
1%

 


Adviser Usage

The 2020 DC Survey found that 78% of defined contribution plans now work with a retirement plan adviser or institutional consultant, up from 68% in 2016, and 54% report having worked with their adviser for over seven years. Sponsors use advisers for a wide range of services, but those involving investment selection and monitoring are among the most common. Many sponsors choose to have advisers serve as co-fiduciaries for their plan, but smaller plans appear more open to 3(38) fiduciary services, whereby sponsors delegate the day-to-day investment decision making to their adviser.

Plans Using a Retirement Plan Adviser/Consultant

2016
68%
2017
71%
2018
73%
2019
76%
2020
78%

Length of Relationship with Adviser

  • <1 year
  • 1 – 2 years
  • 3 – 4 years
  • 5 – 7 years
  • >7 years

Plans Using Fiduciary Advisory Services

≤$100MM
>$100MM
3(38) fiduciary
37%
19%
3(21) fiduciary
48%
71%
No fiduciary status
15%
10%


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Contact Rob Reif / 212-217-6906 / robert.reif@issmediasolutions.com