State of Membership Organizations/Industry Associations Retirement Plans
A look at the setup and features of these plans may offer a clue about how open MEPs sanctioned by the SECURE Act will look.
Membership organizations/industry associations retirement plans rank No. 2 among all industries when it comes to average participant deferral rate (8.8%), according to the PLANSPONSOR 2019 Defined Contribution (DC) Survey. They also rank in the top 10 for average account balance ($118,376).
The PLANSPONSOR 2019 Defined Contribution (DC) Survey results incorporate the responses of 3,472 plan sponsors from a broad variety of U.S. industries. Within the survey, 52 respondents are from membership organizations/industry associations.
Among membership organizations/industry associations, 86.5% offer a 401(k) plan and 15.4% offer a 403(b) plan. More than one-quarter (27.5%) offer a traditional defined benefit (DB) plan, and 3.9% offer a cash balance plan.
Now that the SECURE Act allows for multiple employer plans (MEPs) for employers that do not share a common nexus, the industry is wondering how those plans may be set up. This provision is effective January 1, 2021, and David Whaley, partner at Thompson Hine LLP in Cincinnati, Ohio, says he anticipates some MEPs will be sponsored on day one. “There are already pooled plans among trade associations. I think they will choose to treat themselves as open MEPs, now that the SECURE Act allows them to file a single Form 5500, and they will make modifications to be ready on January 1, 2021,” he says.
The 2019 PLANSPONSOR DC Survey finds that two-thirds (65.3%) of membership organizations/industry associations retirement plans are “safe harbor” plans. The average participation rate is 80.3%, compared to 78.9% for plans in the survey overall.
The most common service delivery model among membership organizations/industry associations retirement plans (44.9%) is a fully bundled arrangement—the same recordkeeper and trustee, and all of the investments are managed by the recordkeeper. Recordkeeper reviews are done annually by 65.2% of plans.
Fifty-seven percent of these plans employ the services of a financial/retirement plan adviser or institutional/investment consultant to specifically assist with plan design decisions, compared to 70.1% of plans in the survey overall. Investment advice is offered to participants in 81.8% of membership organizations/industry associations retirement plans—via financial advisers, a third-party or tools from recordkeepers.
Nearly 45% of membership organizations/industry associations retirement plans indicate they employe a third party as a 3(16) administration fiduciary. Sixty-two percent of these plans have an investment committee, and 79.6% have a written investment policy statement (IPS).
Only three in 10 membership organizations/industry associations retirement plans use automatic enrollment, compare to 48.2% of plans overall. For those that do use automatic enrollment, 80% use target-date funds (TDFs) for the default investment. The most common default deferral rates are 6% (26.7%) and 3% (20%).
Only 29.4% of membership organizations/industry associations retirement plans offer automatic deferral increases (auto escalation).
A profit sharing or other non-matching contribution is offered in 62.5% of membership organizations/industry associations retirement plans, compared to 48.4% of plans overall. A matching contribution is offered in three-quarters of plans, the same as for all plans in the survey. The most common match formula is 51% to 99% of the first 6% of salary, again, the same as for all plans.
The majority of membership organizations/industry associations retirement plans (88.4%) use mutual funds as investment choices in their DC plans, with only 20.9% using separate accounts and only 11.6% using collective investment trusts (CITs). The average number of investment options offered is 21.
One-third (34%) of membership organizations/industry associations retirement plans review investment options quarterly, and 31.9% do so annually. Ninety-three percent say they offer assistance for participants with creating retirement income—via systematic withdrawals, in-plan guaranteed insurance-based products, in-plan managed accounts or managed payout funds or out-of-plan annuity purchase/bidding services.
Two-thirds allow for Roth deferrals, 82.7% allow participants to take loans, and 80.4% allow hardship withdrawals.
PLANSPONSOR 2019 DC Survey industry reports may be purchased by contacting Brian O’Keefe at brian.okeefe@issmediasolutions.com.