Benefits October 11, 2005

Auto Enrollment, Investment Advice Increasing Trends for K Plans

October 11, 2005 (PLANSPONSOR.com) - The Profit Sharing/401(k) Council of America (PSCA) has released its annual survey of current practices and trends in Profit Sharing and 401(k) Plans.
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A PSCA news release said the survey found that auto enrollment was a feature in 10.5% of plans in 2004, up from 8.4% in 2003. The feature was more common in large plans, with 30.6% of plans with 5,000 or more participants having auto enrollment, while .9% of plans with fewer than 50 participants have it.

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Investment advice is also increasingly offered in plans, according to the announcement. Advice was offered in 56.6% of plans in 2004, compared to 54.1% in 2003, 51.9% in 2002, and 41.4% in 2001. Companies most commonly offer advice through one-on-one counseling (56.3% of plans), with internet providers (53.5%) and telephone hotlines (34.35%) being the second and third most common methods. Smaller companies tend to prefer the one-on-one method (64.3%), while larger companies prefer the internet (82.5%).

Other findings of the study, according to the release, include:

  • 77.3% of eligible employees have balances in their 401(k) plans. Pre-tax participant deferrals average 5.4% of pay for non-highly compensated workers (as defined by the ADP tests) and 6.7% of pay for highly compensated workers.
  • Company contributions average 4.5% of payroll. They are highest in profit sharing plans (8.2% of pay) and lowest in 401(k) plans (2.9% of pay).
  • For plans with fixed matches, the most common matches are $.50 per $1.00 up to the first 6% of pay (29.6% of plans), $1.00 per $1.00 up to the first 3% of pay (7.2% of plans) and $.25 per $1.00 up to the first 6% of pay (6.5% of plans).
  • Catch-up contributions for participants age 50 and over are permitted in 95.3% of plans. 28.7% of these offer a match on the catch-up contributions. The percentage of those making catch-up contributions ranged from 35.5% at the smallest companies to 14.8% at the largest.
  • Plans offer an average of 18 funds for participant contributions, up from 17 funds in 2003.
  • The funds most commonly offered for participant contributions are actively managed domestic equity funds (77.8% of plans), actively managed international equity funds (71.2% of plans), balanced stock/bond funds (69.3% of plans), and indexed domestic equity funds (67.9% of plans).
  • The typical plan has approximately 65% of assets invested in equities. Assets are most frequently invested in actively managed domestic equity funds (31.7% of assets), indexed domestic equity funds (10.3%), stable value funds (9.7%), and balanced stock/bond funds (9.6%).
  • Self directed brokerage windows are offered in 15.6% of plans, while open mutual fund windows are offered in 7.3% of plans. 0.5% of plan assets are invested through brokerage windows and 0.3% of plan assets are invested through mutual fund windows.

PSCA’s annual survey reports on the 2004 plan year experience of 1,052 plans with over 9 million participants and more than $500 billion in plan assets. Copies of the survey are available for purchase by visiting www.psca.org .

Administration October 10, 2005

Spitzer Insurance Probe Also Looks at Consultants

October 22, 2004 (PLANSPONSOR.com) - The sweeping probe into price-fixing and bid-rigging in the insurance industry by New York Attorney General Eliot Spitzer has apparently expanded to include the activities of insurance consultants who advise employers on benefit plans.
Reported by

The investigator, who requested anonymity, told Reuters that the focus of the Spitzer probe now includes life and health insurance firms as well as consulting firms that advise companies on insurance and benefits plans. Spitzer’s office is looking into fees paid by insurers to consultants, known as “overrides,” for their efforts in advising companies in setting up insurance plans and placing insurance policies. Earlier this week Marsh said Mercer stopped accepting overrides on October 1.

In May, reports revealed that insurers often paid fees to consultants who advised companies on where to buy policies for employees. Spitzer argued that these payments, whether to brokers or consultants, represent a clear conflict of interest and have likely led to inflated costs for clients. Other benefits consultants that have accepted payments from insurers include Hewitt Associates and closely-held Towers Perrin. These firms have said their fees were fully disclosed to clients.

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Last week Spitzer, who also sparked a continuing and wide-ranging probe into abusive mutual fund trading and sales practices, sued Marsh & McLennan Cos., accusing the world’s largest insurance broker of steering business in exchange for secret fees. Spitzer said then that the probe would eventually extend to every part of the insurance industry. The Reuters source said “dozens” of Spitzer subpoenas have been issued since the beginning of this year to insurance brokers and property-casualty insurers.

The added investigative focus is significant for the Boston-based Marsh, the parent of broker Marsh Inc., which also owns Mercer, a corporate consulting business.”We are looking at Marsh & McLennan very broadly in its connection to the insurance industry,” the official told Reuters. “We understand Mercer does a fair amount of insurance consulting and employee-benefits consulting and we’re looking at those areas as well.”

Marsh finds itself at the center of a probe challenging the practice of brokers accepting fees – known as contingent commissions or placement service agreement (PSA) fees – from insurers  (See    Spitzer Takes On Contingent Commissions ). Spitzer said Marsh steered business to insurers on the basis of these fees rather than which insurer offered the best price.

Marsh collected $845 million of PSA fees last year, more than half of the company’s total profit. By comparison, overrides were less than 1% of health care and group benefits revenue for the company.

Other State Investigations

In addition to Spitzer’s activities in New York, the iinsurance industry probe has now spread to California, Connecticut, Pennsylvania, New Jersey, Virginia, Massachusetts, Minnesota, Florida, Illinois and Maryland where state authorities have launched their own inquiries.

Massachusetts Insurance Commissioner Julianne Bowler, meanwhile, recently met with Liberty Mutual Group officials, a spokesman for the commission said. The Boston-based insurer said Wednesday it had been subpoenaed as part of the Spitzer probe. The insurance commission has also opened an examination of of property, casualty, life and health insurers in the state who offer employer group benefits through brokers.

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