Survey: Road to DC Happiness Includes Fewer Investment Options, Advice

June 13, 2005 ( - Defined contribution plan sponsors believe fewer investments options and more financial advice would best serve participants, a new survey found.

A news release said that Callan Associates’ triannual survey of DC plan sponsors revealed that the average number of investment choices in DC plans was 16 in 2004, down from 20 in 2001. In 1998, sponsors offered an average of 11 investment choices.

“In the bull market, a philosophy of ‘more is better’ prevailed,” said Anna Oakley, Callan vice president, DC Practice Leader, in the news release “As the market moderated, plans found that too many choices could overwhelm participants and lead to bad investment decisions.”

Asset allocation or lifecycle funds remain an important plan offering, with 74% of plan sponsors including them in lineups (See Simplicity Sells ). Risk-based lifestyle funds still represent the majority, but time-based funds have risen to 42% of the mix this year versus 22% in 2001, Callan found. Callan respondents noted that time-based products are easier to explain and easier for participants to understand.

Advice Offerings

When it comes to the always hot area of retirement planning advice, one-third of Callan’s survey respondents are offering advisory services to participants, with another third indicating that adding an advice component is a priority for 2005. Of the respondents currently providing advice, about six in 10 rely on an independent Web-based provider, while only 21% use their recordkeeper’s proprietary model for these services, Callan found. In 2001, of the DC plan providers offering advice, 43% used their recordkeeper.

Callan said the consulting firm was concerned about the number of plans using outside advice vendors since only 36% of plan sponsors have procedures to monitor these providers.

One topic high on the agenda for the DC plans in the Callan survey: the level of fees. Virtually every plan has had a fee discussion and/or reduction with their current provider within the past three years, with well more than half conducting such a review within the past year, the survey found. One-third of sponsors said they would be willing to incur an annual per-participant recordkeeping fee to minimize the impact of investment management fees on plan assets.

Other survey results showed that:

  • the number of plans maintaining a documented investment policy statement increased to 86%, from 78% in 2001
  • three-quarters of respondents conduct quarterly meetings to address oversight responsibilities including investment policy and 404(c) compliance
  • corporate Treasury staff, which has typically been responsible for a company’s defined benefit (DB) plan, are now more commonly sharing the duties of DC plan oversight once held almost exclusively by Human Resources (HR). Investment oversight of DC plans at three-quarters (76%) of responding firms falls to a committee including staff from both HR and Treasury/Finance, compared with only 59% in 2001 and 51% in 1998.

Callan conducted the survey in late 2004 and drew responses from 95 plan sponsors with more than $100 billion in total assets and 1.1 million participants.