What’s eating at employers? 401(k) plan sponsors rank investment volatility, benefit costs and regulatory compliance as their top concerns now and for the next two years, according to a new survey by Willis Towers Watson.
The survey also found a staggering one in three employers had their retirement plans audited by the federal government over the past two years.
The survey of 300 employers found just over half (53 percent) of respondents ranked investment volatility as one of their top three current retirement plan risks, while 49 percent ranked retirement benefit costs as a top concern.
Regulatory compliance was cited by 47 percent of plan sponsors as a top three concern, and with good reason. Over the past two years, nearly one-third of respondents (31 percent) have had their retirement plans audited by the Internal Revenue Service or Department of Labor. Larger employers reported an even higher audit rate. Roughly half of employers with at least 25,000 employees have faced an audit over the past two years. The survey also found that very few employers (2 percent) have faced fee and stock drop lawsuits over the past two years.
“The fact that one in three retirement plans have been audited should send a wake-up call to many plan sponsors,” said David Speier, senior retirement consultant at Willis Towers Watson. “Regulatory compliance is a top concern, and there is room for a fair number of employers to improve the management of this risk. Proactive reviews of plan operations and compliance processes, for example, should be given a much higher priority at organizations that do not have a structure in place to conduct proactive reviews.”
Indeed, the survey found that 44 percent of plan sponsors have not conducted an operational compliance review of their defined benefit (DB) plans in the past two years, while 42 percent have not conducted a similar review of their defined contribution (DC) plans. About a third of respondents indicated that limited budgets and resources prevented them from conducting a review over the past two years.
“Retirement plan governance is becoming increasingly critical, especially as employers face heightened scrutiny in the legal and regulatory environment. Employers can take several measures to effectively manage these evolving risks including plan audits to ensuring compliance with laws and regulations, process documentation and results measurement,” said Lisa Canafax, senior retirement consultant at Willis Towers Watson.
Among other survey findings:
Governance structure. Half of sponsors have separate committees for plan administration and investment governance.
Governance committee training. Sponsors understand that training is a critical component of a strong governance framework. More than half of members are formally trained, either when they join the committee (26 percent) or on a scheduled basis (36 percent).
Third-party advisors. Almost nine in 10 DC plan sponsors engage a third-party advisor to assist with investment options offered to participants.
Investment outsourcing. Thirty-three percent of DB plan sponsors fully or partially outsource at least one aspect of their investment services, and 26 percent of DC plan sponsors do so. Manager selection and implementation activities are aspects that are most frequently outsourced.
Measuring effectiveness. It is extremely important to monitor and measure results. More than half of DC plan sponsors monitor the following elements at least quarterly or more frequently: investment managers, investment goals and objectives, participant asset allocation, fees and expenses, and participation and contribution rates.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
