Larger and smaller defined contribution plans operate as differently the way the companies that sponsor them conduct business. But it’s usually enlightening to see how the other half lives thinking about what will migrate down market. To that end, the Callan DC Trends study is worth perusing unless you just want to read this post and trust my judgement on what I think is important or interesting:
- The demise of TDFs for the upper crust is real, dropping from 47.5% of plans using them in 2013 to 28.7% last year. Custom funds have increased from 11.5% to 22.3%, with collectives likely to increase. My guess is that these trends will move down market but very slowly.
- Fewer plans conducted formal fee reviews or bench-marking and fewer are reducing fees after they have yet more are likely to move to lower share classes (thank you recent lawsuits and the Supreme Court) and more are likely to renegotiate record keeper fees.
- Auto enrollment is being used by 61.7% of plans, the 4th year that it has increased, but auto default is as low as 1% with an average of 4.3% (nice if they would have given us the median). Now that’s scary – people may not even notice they have been auto-enrolled. If they do and it’s too low, how many will realize that it’s not enough before it’s too late?
- Only one-third pair auto escalation with auto enrollment which is like serving peanut butter without jelly. Most cap out at 6%. Seriously? These are enlightened, larger companies?
Takeaways? Maybe some consultants are advocating that clients move from prop TDFs because they are pushing their own custom models. No, that would never happen, right? And if you’re going to move to the auto, ideal plan, do it right or not at all!
