Large Plan Sponsors Define the Cutting Edge of DC

Earlier this week, BlackRock released the results of its latest Defined Contribution Pulse Survey, compiling the opinions of some 200 large defined contribution (DC) plan sponsors and about 1,000 plan participants.

Reviewing the results with PLANADVISER, Anne Ackerley, head of BlackRock’s U.S. and Canada defined contribution business, said the ongoing research effort often reveals surprising results. As she stressed, the survey data is comprised of polling results generated from large DC plan sponsors, which has a significant effect on the character of the responses. In a phrase, these plans represent the best of the best.

Asked what third parties are involved in the design of their organization’s workplace retirement plans, just more than half said “a financial adviser.” Fewer (36%) cited “an employee benefits consultant,” while three in 10 pointed to a third-party administrator (TPA). This last stat is particularly interesting, given that these are responses coming from large, well-established plans.

The role of TPAs is commonly viewed as being more limited in this market segment, given that large plan sponsors are more likely to have their own dedicated administrative staff to manage and run the retirement plan. But as the BlackRock stats show, at least when it comes to plan design, TPAs continue to exert some significant influence.

Other entities cited as helping to drive plan design include an investment consultant (28.9%), an investment manager (21.1%), an insurance company (14.9%), the plan’s legal counsel (14.0%), and, finally, the recordkeeper (10.1%).

The BlackRock data shows a wide variety of recommendations being made and actions being taken in this area. In the past two years, just shy of 20% of these plan sponsors raised their default participant contribution rate; 18% selected a new default investment alternative; 17% changed the company match formula; 16% made auto-escalation “opt-out instead of opt-in”; 15% implemented auto-enrollment for the first time; 14% changed their plan’s qualified default investment alternative strategy or provider; 13% implemented or increased auto-escalation features; and 11% automated catch-up contributions.

Asked which steps, if any, their organization has taken to change its investment policy in the last three years, again, many responses were submitted. Some 44% enhanced measurement and reporting of investment fees; 42% enhanced measurement, benchmarking and reporting of investment performance; 40% enhanced risk analytics, for example to include scenario-based stress testing; and 26% began applying environmental, social and governance (ESG) criteria in some capacity in investment decisions. Just 8.3% suggested they had not taken any steps. Ackerley agreed this is an impressive level of plan design and improvement activity, especially given the fact that many of these large plans are already setting the standard.

As it stands in 2018, the data further shows, large plans have become even more aggressive about monitoring the proper use of investment menus. Asked how often, if ever, the committee reviews how participant investments are allocated to the various investment options in the plan, 40% said this occurs more than once a year, while 50% perform such reviews annually. The remaining responses suggested this work is done “every few years.”

Additional data points show these large plan sponsors have broadly pared back their investment menus. Fully 43% of the respondents have between one and five investment options; 12% offer between six and nine options; and 45% offer 10 or more. However, the median number of funds is eight, showing even those with more than 10 options have taken steps to cut down on the number of offerings.

Asked about their decisions whether or not to add a decumulation solution, 25% of sponsors say a change was considered in the past two years but has not yet been made; slightly more, 28%, say a change has been made in this area in the last two years. Another 19% of sponsors are considering a change for the coming two years, while 28% say this subject is not currently a point of discussion.

Another point of interest is the steady addition of indexed fixed income strategies—this was completed in the last two years by nearly a third of the plan sponsors polled, and 27% say this possibility is a point of ongoing discussion. Just about the same numbers say they have replaced some active strategies with indexed strategies, or are discussing doing this. The same goes for adding alternative or alternative-like strategies.