It’s “business as usual” for defined contribution plans, according to NEPC’s DC plan survey. The 15th annual Defined Contribution Plan & Fee Survey, released Monday, includes responses from 142 DC plans covering 1.8 million participants with $191 billion in aggregate assets.
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Average participation is at 82%, NEPC found, thanks to the steady adoption of automatic enrollment. Plans that utilize auto-enrollment have increased from 21% in 2005 to 64% in 2020. Meanwhile, 49% of plans have implemented automatic escalation. Participants are deferring an average 4%, with auto-escalation capping deferrals at 15%.
Plans offer several ways for retirees to begin drawing on their savings. In addition to lump-sum payments, which all surveyed plans offer, 91% allow retirees to begin taking assets while they’re still working once they hit 59 ½. Eighty-seven percent allow retirees to take plan assets in installments, while three-quarters let participants make withdrawals as needed.
“As plans continue to innovate, we expect to see more focus on plan design elements that aid the post-retirement life of participants,” said Ross Bremen, partner in NEPC’s Defined Contribution Practice Group.
Target date funds have become ubiquitous, with 96% of plans offering them, up from 76% in 2005, according to the report. Forty-two percent of plan assets are invested in TDFs, and over two-thirds of plans offer an actively managed TDF. Meanwhile, over a third of plans offer a managed account (36%).
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Bremen acknowledged the as-yet unknown effect the Biden administration will have on the retirement industry.
“Additionally, with a new administration in office, we’re keeping close watch on how potential legislative measures could impact plan design and implementation moving forward,” he said.
Fee environment
“Plan fiduciaries have an obligation under ERISA to ensure that the fees of a plan are reasonable for the services provided,” NEPC wrote in the report. Investment fees account for 81% of total plan costs, according to the report, followed by administration fees at 13%. The most common fee structure by far is fixed dollar, which is used by 63% of plans. Fewer than one in five plans use a bundled fee or fixed basis point structure, while 3% use some combination of those structures.
NEPC noted that fee disparity is much narrower, and lower, for plans with more than 1,000 participants. Smaller plans pay between $60 and $160 per participant, according to the report, compared to $80 or less on larger plans.
“Best practice is to compare fees and services through a record-keeping vendor search Request for Proposal (“RFP”) process,” NEPC wrote.
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