Reviewing fees was the most important step 401k plan sponsors said they took to improve their plan’s fiduciary position in 2021, according to Callan’s 2022 Defined Contribution (DC) Trends Survey, and respondents said fees will continue to be a primary focus in 2022.
Now in its 15th year, the survey from the San Francisco-based institutional investment consulting firm highlights key findings from 2021 and expectations for 2022, while offering actionable insights for DC plan sponsors.
In addition to fees, cited by 76% of respondents, examining a plan’s investment policy statement (63%) and investment structure (61%), and completing formal fiduciary training (52%) followed. All are expected to be primary focus areas in 2022, the report states.
“With the continued focus on fees, plan sponsors have more access to detailed fee data, allowing them to take a deeper dive when reviewing fees,” said Jamie McAllister, co-author and Callan DC consultant. “While there is a greater level of fee data and transparency, it is still surprising that 43% of sponsors don’t know if indirect revenue is evaluated as a part of their fee review. This can be a meaningful amount.”
The survey also revealed that 83% of plan sponsors benchmarked plan fees, with consultant databases the most commonly used method. About one-third (33%) of respondents said they reduced fees after their most recent fee analysis.
Another interesting finding is that investment management fees were most often paid entirely by participants (85%), and almost always at least partially by participants (92%). By contrast, 58% of all administrative fees were paid entirely by participants.
For 2022, plans said they will focus on the following actions related to fees:
• 72% are somewhat or very likely to conduct a fee study. Nearly the same share also said they are somewhat or very likely to review other fee types.
• 58% of respondents are likely to move to lower-cost investment vehicles.
Other somewhat or very likely actions include renegotiating investment manager fees (41%);
service agreements with recordkeepers (39%); and recordkeeper fees (39%). About 1 in 4 plan sponsors (24%) said they plan to explore a recordkeeper search in the coming year, a notable increase from the previous survey (14%).
3 in 10 plans upping auto-escalation
In a blog post announcing findings from the new survey, McAllister said recent legislative initiatives have spurred sponsors to make several changes to their plans.
“The SECURE Act led 31% to say they will increase their automatic escalation rate and 13% to say they are ‘very’ or ‘somewhat likely’ to add an annuity option,” McAllister said. “And after the CARES Act established coronavirus-related distributions for qualified individuals, 35% of sponsors are now actively encouraging affected participants to make repayments.”
McAllister also revealed that only 12% of plan sponsors made a change to their company match in 2021. Of those that did, 29% reinstated the match while another 29% increased the match. In 2022, 16% plan to make a change to the match while another 8% may consider a change. Most plan to increase (40%) or restructure (40%) their match.
More survey highlights
• Assessing security protocol was a priority (41%) in 2021. About a third will do the same in 2022.
• 100% offer advisory services, including guidance, seminars, and financial wellness.
• 95% offer a target date fund series.
• 86% have taken steps to prevent plan leakage. Top actions included offering partial distributions (66%) and installment payments (57%).
• Most plans (9 in 10) do not offer an ESG fund. About a third will consider it in the future. This was a newly added question to the survey.
Respondents mostly ‘mega plans’
The survey was conducted in the fall 2021 and incorporates responses from 101 DC plan sponsors, including Callan clients and other organizations.
- The majority (90%) offered a 401k plan as the primary DC plan.
- More than 97% of plans had over $100 million in assets, and 74% were “mega plans” with over $1 billion in assets.
- More than three quarters were corporate organizations, followed by governmental (11%) and tax-exempt (7%) entities.
“We are humbled by the fantastic level of support we received from plan sponsors in completing our annual survey,” said Greg Ungerman, co-author and Callan DC practice leader. “We believe the results act as a wonderful sounding board for those looking to see how others address the many different issues and topics facing plan sponsors today.”
Find the summary blog post and study here.
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