Three-quarters (76%) of defined contribution plans are very unlikely to join a multi-employer plan (MEP) or pooled employer plan (PEP), according to institutional investment consulting firm Callan’s latest Defined Contribution Survey, released this week.
The top concerns around MEPs/PEPs were: less control over plan administration (76%); complexity around administration (69%); competitiveness relative to existing plan (67%). Additionally, the largest plans reported being concerned about cost efficiency compared to their current plan.
Now in its 14th year, the annual Callan DC survey offers actionable insights for DC plan sponsors. It is the work of Callan’s Defined Contribution Consulting Group, which provides specialty research and expertise around DC plan trends, aspects of compliance and administration, behavioral aspects of structure design specific to DC plans, and vendor and fee management.
Among other findings in the wide-ranging survey include a huge uptick in virtual committee meetings with a spike in attendance by internal legal counsel; plan fees are expected to receive heavy scrutiny in 2021; there has been a slower pace of change in investment structures; and the use of collective trusts is on the rise while the use of mutual funds is on the decline. The full survey contains far more detail, including breakouts based on plan size, organizational type (e.g., corporate, government), and industry.
New this year, the survey covers the SECURE and CARES Acts, the impacts of the COVID-19 pandemic, and key tenets of DC plan management, financial wellness, and health savings accounts (HSAs). The survey, which Callan conducted online in September and October 2020, incorporates responses from 93 large DC plan sponsors, including Callan clients and other organizations.
“The world is changing dramatically, and our annual survey is evolving to fit the shifting landscape,” said Jana Steele, survey author and a senior vice president in Callan’s Defined Contribution Consulting group. “Some of the traditional activities we see in DC plans slowed this year or required greater urgency, likely due to the twin forces of the COVID-19 pandemic and the resulting financial shocks.”
More key findings
More than 90% of plans in the survey had over $100 million in assets, and the majority of respondents (60%) had more than 10,000 participants.
- Plan governance and process ranks as the top area of focus by a notable margin.
- 2x as many plans suspended or reduced the matching contribution in 2020.
- 71% of plan sponsors are either somewhat or very likely to conduct a fee study in 2021, a significant increase from the prior year’s survey (56%). Most respondents also indicated they are very or somewhat likely to review other fee types (e.g., managed account services fees) and indirect revenue (e.g., revenue shared from the managed account or rollover provider).
- 73% adopted coronavirus-related distributions related to the CARES Act while only approximately 40% increased loan maximums. Employers that reported taking a workforce action (e.g., salary reductions, layoffs) were more likely to adopt CARES Act provisions.
- 65% offer a health savings account, and 22% are bundled with DC services, with participation and cost tied for top concerns.
- 60% of respondents offered financial wellness support, while only 14% offer a standalone financial wellness program.
- A third of plan sponsors (32%) with a qualified automatic contribution arrangement (QACA) will increase their automatic escalation rate as a result of the SECURE Act.
Benchmark for plan sponsors
The survey provides a benchmark for sponsors to evaluate their plans compared to peers, and to offer actionable information to help them improve their plans and the outcomes for their participants.
This year respondents spanned a range of industries; the top industries represented are financial services/insurance, energy/utilities, government, automotive/construction and mining/manufacturing (combined into a single category given their workforce makeup), and health care.
More than eight in 10 (82%) of respondents offered a 401k plan, 12% a 403b plan, and 14% a 401a plan. Sixty-one percent of respondents had more than $1 billion in plan assets. Roughly 7 in 10 corporate respondents offered a nonqualified deferred compensation (NQDC) plan, while a similar portion of tax-exempt (73%) and governmental (74%) entities offered a 457 plan.
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.
