For the fourth year in a row, plan sponsors ranked “reviewing plan fees” as the most important step they took to improve their plan’s fiduciary position, according to the just-released 2020 Defined Contribution (DC) Trends Survey from Callan.
Fees will also be the main priority in 2020 per the survey research from the San Francisco-based institutional investment consulting firm. Participant communication closely followed fees as the top area of focus for 2020—with financial wellness ranking No. 1 for the third consecutive year.
“With the amount of fee-related project work we see, it’s not surprising fees continue to be a top priority for 2020,” said Jamie McAllister, co-author and Callan DC consultant. “What is surprising: Over 45% of sponsors don’t evaluate indirect revenue as a part of their fee review. Since indirect revenue from sources such as managed accounts or rollover assets can be a meaningful amount, we feel it’s important to be considered in the overall fee evaluation.”
In line with the past three years, plan sponsors rated “participation rate/plan usage” as the most important determinant for measuring the success of their DC plan. “Contribution/savings rate” was the second most important factor, followed by investment performance and cost effectiveness.
More survey highlights
As in prior surveys, the majority of respondents (86%) offered a 401k plan as the primary DC plan. More than 90% of plans in the survey had over $100 million in assets, and 64.6% were “mega plans” with over $1 billion in assets.
Here are a few of the other highlights from the highly detailed 50-page report:
- Roth: 87% of plans offer a Roth feature, an all-time high (was only 62% in 2015). The most common reason for waiting to add a Roth feature or not offering one was due to the complexity of a participant communication campaign to describe the feature.
- Target Date Funds: 93% of DC plans offer a target date fund, and the prevalence of custom solutions increased modestly to 17.3% in 2019. Over half (56.2%) of plan sponsors took some sort of action with regard to their TDFs in 2019. Of those taking action, evaluating the glidepath suitability was the most prevalent course of action (80.5%). Changing the share class (19.5%) and replacing the TDF (12.2%) rounded out the top three.
- Plan leakage: 89% have taken steps to prevent plan leakage, with the most common step being to offer partial distributions.
- 2020 fee focus: 67% plan to switch to lower-fee share classes; 50% plan to renegotiate manager fees; and 45% plan to renegotiate recordkeeper fees.
- Advisory services: The vast majority of plan sponsors (95.4%) offered some form of guidance/advisory service to participants. The most popular were online advice and on-site seminars.
- Cybersecurity: Despite being a newsworthy topic, cybersecurity only slightly increased in priority from last year.
In its 13th year, the survey offers actionable insights for corporate DC plan sponsors. Conducted by Callan in the fall 2019, the survey incorporates responses of 114 plan sponsors—including Callan clients and other organizations. The survey highlights key themes and findings from 2019 and expectations for 2020.
“We are grateful for the tremendous participation from our clients and non-clients in helping create such a robust survey,” said Greg Ungerman, co-author and Callan DC practice leader.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
