Employers Taking Charge of Their Retirement Plans
New federal rules released last year made clear that defined contribution plan sponsors needed to get a better handle on investment and other provider fees. A new survey shows that they have.
Defined contribution retirement plan sponsors had a better understanding of investment performance in their retirement funds last year and made significant changes as a result, a new study says.
According to Callan Associates' 2013 Defined Contribution Trends Survey, 40.7 percent of plan sponsors—normally the employer who is responsible for creating and maintaining the plan—said they replaced underperforming funds or managers last year. That's up 9.2 percentage points from 31.5 percent in 2011.
Two new federal rules released last year made clear that defined contribution plan sponsors needed to get a better handle on investment and other provider fees, says Lori Lucas, executive vice president and defined contribution practice leader at Callan. The rules stipulate that plan sponsors need to know what they're paying for and need to figure out whether fees are reasonable for the services the retirement plan gets.
"Plan sponsors are more comfortable in making changes to their investment management lineup as they have become more comfortable mapping assets," Lucas says.
On average, plans changed two managers, but one plan reported six replacements, the survey said. Nearly two-thirds of plan sponsors or 65.2 percent replaced large-cap equity managers, followed by international equity managers at 30.4 percent. Only 4.3 percent of respondents said they replaced target-date fund managers.
Plan sponsors say they will focus mostly on compliance, plan fee and fund/manager issues in the next 12 months. The study reported that more than half of plan sponsors say that they are "somewhat" or "very likely" to do a fee study this year. Improving participant communication also ranked high as well as examining the number and types of investments in 2013.
Callan's annual survey, done online in late 2012, examined responses from 103 plan sponsors. Three-quarters of respondents offer 401(k) plans, while the remaining pool sponsors other defined contribution plans such as 403(b), 457(b), 401(a) and profit-sharing plans. Most plans—85 percent—have more than $100 million in assets.
Patty Kujawa is a writer based in Milwaukee. Comment below or email firstname.lastname@example.org.