With market volatility slowing in January, trading activity among 401(k) investors dropped off, according to the Alight Solutions 401(k) Index. In fact, January 2019 was the slowest start to the year in the more than 20-year history of the index.
The average daily activity for the month was 0.016%, lower than the 0.024% in January 2018 and the trailing five-year average of 0.025%.
Seventeen of 21 trading days, or 81%, favored fixed income funds. A mere four, or 19%, favored equities. During the month, there were only three above-normal trading days.
Inflows went mainly to bond (79%), small U.S. equity (8%) and stable value funds (6%). Outflows came primarily from large U.S. equity 43%), target-date funds (23%) and company stock funds (22%).
The average asset allocation in equities ticked upward to 67.6% at the end of January from 66.6% at the end of December. New contributions to equities also ticked upward, to 67.7% in January from 66.7% the month before.
Asset classes with the largest percentage of total balance at the end of January were target-date funds (28%), large U.S. equity funds (25%) and stable value funds (11%).
Comparing Not-for-Profit and For-Profit Health Care DC Plan Data
While the 2018 PLANSPONSOR DC Survey shows that, in many ways, not-for-profit health care DC plan sponsors have adopted more “best practices” for their plans than those in the for-profit segment, the for-profit plan sponsors have more confidence in participants achieving retirement income goals.
In the health care industry, 403(b) plans still dominate the not-for-profit segment, according to the 2018 PLANSPONSOR Defined Contribution (DC) Survey.
In the not-for-profit health care segment, 67.3% of respondents offer 403(b) plans, while 47% offer a 401(k). In the for-profit segment, 96.1% offer a 401(k) and 2.6% offer a 403(b) plan. Brian O’Keefe, director of research and surveys at Strategic Insight, parent of PLANSPONSOR and PLANADVISER, explains that “for-profit” entities are often smaller, private practices, like physicians, dentists, MRI-centers, etc. while “not-for-profit” are often larger, state- nonprofit- or religious organization-sponsored hospitals.
In many ways, the survey shows not-for-profit health care DC plan sponsors have adopted more “best practices” for their plans. For example, 54.4% use automatic enrollment and 37.6% use automatic deferral escalation, either as an opt-out option or a voluntary option. Among for-profit health care DC plan sponsors, only 35.4% use auto enrollment and 31.2% use auto escalation. However, while 3% is the most common default deferral rate for auto enrollment for both segments, the for-profit segment is more likely to use a default rate higher than 3% (53.2% vs. 37.6% of not-for-profits).
Sixty-seven percent of not-for-profit health care organizations reported full-time employees are eligible to participate in their retirement plans immediately, while only 21.4% of for-profit plan health care DC plan sponsors offer immediate eligibility. In addition, 81.1% of the not-for-profit segment offers an employer match on employee deferrals, compared to 63.1% of the for-profit segment. However, for-profit health care DC plan sponsors are more likely to offer a non-elective or profit sharing contribution in their plans, 60.4% vs. 47.2%, respectively.
Asked how often they review their plan’s investment options 92.4% of not-for-profits indicated they do so annually or more often, and 84.5% of for-profits annually or more often. Among both health care segments, the most commonly reported average asset-weighted expense ratio of all investment options in their plan is less than 0.75%, or 75 basis points (bps) (84.6% not-for-profit, 74.6% for-profit).
More than half (53.4%) of not-for-profit health care DC plan sponsors said they externally benchmarked total fees paid to their DC provider/recordkeeper in past year, compared to 41.5% of for-profit plan sponsors. About two-thirds of both segments use the services of retirement plan advisers, but in the past year, 63.8% of the not-for-profit segment calculated actual fees paid to their adviser, compared to 51.2% of the for-profit segment.
Less than one-quarter (24.5%) of not-for-profit health care DC plan sponsor do not offer any retirement income products or services in- or out-of-plan to help participants with creating a retirement income stream. This is true for 56.8% of the for-profit segment.
Nearly 86% of not-for-profit health care entities reported that financial advice in some form is offered to DC plan participants, compared to 79.4% of for-profit entities. And, 44.9% of not-for-profits offer formal education/guidance on budgeting and 33.7% on credit/debt management, compared to 21.4% and 15.2% of for-profits, respectively. More than two-thirds (67.6%) of DC plan sponsors in the not-for-profit health care segment agreed with the statement that they have a responsibility to improve the financial wellness of employees, compared to 55.7% of for-profit plan sponsors that agreed.
Only 8.7% of for-profit health care DC plan sponsors measure the percent of participant who are meeting retirement income goals as a measure of success for their plans, and only 5.1% measure the percent of participants hitting their retirement income replacement goal. The numbers are 12.3% and 11.3%, respectively, among the not-for-profit segment.
Despite this, and despite the use by not-for-profit health care DC plan sponsors of many plan design and governance best practice, 22.4% of for-profit respondent agreed with the statement, “Most of our employees will achieve retirement income goals by age 65,” while on 15.9% of not-for-profit sponsors agreed.
For more information about PLANSPONSOR DC Survey industry reports, contact Brian O’Keefe at (203) 979-3091 or brian.okeefe@strategic-i.com.