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New Survey Reveals How 401k Plan Sponsors Rank 8 Hot Topics

December 20
00:08 2011

Deloitte Consulting has just issued the 2011 Edition of its Annual 401k Benchmarking Survey. The comprehensive study explores a multitude of areas 401k plan sponsors will no doubt have great interest in – from investments to 119656_4546_priority_stock_xchng_royalty_free_300fees, from plan policies to service providers. What might be most revealing, and what might surprise many so-called industry pundits, has to be how 401k plan sponsors ranked the eight hot topics presented to them.

While Deloitte doesn’t offer any specific ranking in the body of its text, the firm does provide the raw data in the appendix of the report. FiduciaryNews.com took that raw data and used a parliamentary style of weighting typically employed by market research firms to rank responses. What we found tends to explain a lot of what’s being reported in the 401k media. It might also be useful to the typical 401k fiduciary who’s trying to benchmark plan priorities.

We present the results here in reverse rank order.

#8 (Weighted Rank: 3.06) New retirement income solutions to create lifelong retirement goals. This topic, which addresses the issue of annuities, not only ranked the lowest, it ranked far below those above it. Data from elsewhere in the survey indicates roughly three-quarters of the respondents are not considering annuities, a resounding thumbs-down for a product that’s been so heavily promoted recently. Another article this week (“Plan Sponsors Remain Cool to Annuity Products,” (Institutional Investor, December 19, 2011) postulates that both high fees and increased fiduciary liability are keeping plan sponsors away from these products.

#7 (Weighted Rank: 3.71) Improving the quality and/or accuracy of administrative service. While significantly higher than the lowest ranked topic, this topic, relating to satisfaction with recordkeeping services, still lagged behind the clump of hot topics immediately above it. This is consistent with data shown in the survey where 91% of the respondents are either “satisfied” or “very satisfied” with their recordkeeper.

#6 (Weighted Rank: 3.81) Retirement readiness of active participants. The next three hot topics are packed fairly tightly. This topic addresses both the deferral rates and the education level of employees. Bear in mind these rankings are relative and may not speak to the level of importance of any particular topic. This topic is a good example as survey data also shows 84% of the respondents feel they should at least take an interest in – if not feel very responsible for – helping employees be best prepared for retirement. Indeed, the survey shows only 15% of the plan sponsors feel “most employees are or will be financially prepared for retirement.”

#5 (Weighted Rank: 3.85) Improving plan governance, compliance and controls. This topic ranks very close to the topic immediately above it and immediately below it. Other responses in the survey explain why this topic isn’t of major concern. The survey indicates 91% of the plans have a formal investment policy statement and 84% and written due diligence procedures.

#4 (Weighted Rank: 3.90) New Disclosure Regulations 404(a) and 408(b)(2). A case can be made that this topic and the one ranked immediately below (#5 listed above) are very similar. It is understandable, however, that this new regulations would have a greater urgency than generic compliance issues. Of interest, 90% of the plans responding expect their recordkeeper to provide help with relevant disclosures.

#3 (Weighted Rank: 3.99) Improving understanding of (and potentially reducing) plan expenses. Again, this topic is similar to the topic ranked immediately below it (#4 above). Here’s the unexplained irony of this survey (and what may reveal the very real likelihood for sticker shock once 408(b)(2) kicks in): 84% of those surveyed feel their fees are competitive yet fully 76% admit to being in a bundled relationship. Bundled relationships often feature higher fees.

#2 (Weighted Rank: 4.08) Reducing plan risk and potential fiduciary responsibility. One might read into this topic “reducing potential fiduciary liability.” Many might feel this topic ranking a clear #2 might be surprising, especially since the plan sponsor cohort has been mysteriously silent on the whole issue of the DOL’s proposed new definition of fiduciary. That this topic ranks so high could be a signal they’re listening. The question is: Does the DOL recognize plan sponsors are listening?

#1) (Weighted Rank: 4.33) Providing the right investment to help participants achieve retirement goals. This topic is related to the #6 ranked topic (retirement readiness of active participants). Given the nature and purpose of retirement plans, this should always rank as the top priority for plan sponsors and fiduciaries. That it has received so little treatment from the 401k media of late might be what is really surprising. There’s been a large body of research, particularly in the area of behavioral finance, addressed this issue on point (see “3 Ways 401k Plan Sponsors Can Help Employees Make Better Investment Decisions,” “3 More Ways 401k Plan Sponsors Can Help Employees Make Better Investment Decisions” and “Avoiding Decision Paralysis: How to Create the Ideal 401k Plan Option Menu.”

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About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA

6 Comments

  1. Dana Muir
    Dana Muir December 20, 16:07

    Thank you for this analysis. Plan sponsors concerns with plan risk and fiduciary responsibility may be linked with their number one priority of having the right investment products in their plan and getting participants invested in those products.

    I too have wondered why plan sponsors haven’t been more vocal in the debate on DOL’s proposed redefinition of fiduciary.

  2. bill
    bill December 20, 20:59

    #1 seems to be misplaced. The root of the problem is that most participants don’t have an adequate account balance to even consider retirement. What’s the point of having the right investment if your account balance doesn’t exceed at least $50,000? Most plan participants don’t contribute enough to their 401k plan. That’s the problem, plain and simple.

  3. rob
    rob January 10, 16:51

    Can we get permission to reprint this article for our plan sponsors Chris?

  4. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author January 13, 15:59

    Rob, thanks for asking! We are honored by your request!

    Please go to the “Contact Us” tab on the Nav Bar at the top of the page. That gives you instructions about reprints.

  5. Anne C. Huss
    Anne C. Huss March 07, 09:14

    Bill’s comment targets the problem none can solve–those who need most to save for retirement either can’t or won’t do so. The 401(k) Plan remains a wonderful supplemental retirement savings vehicle, but it can never replace the old-fashioned pension plan for most employees — and we can’t expect a revival of true pension plans, at least not in the lifetime of those reading this comment.

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