Administration October 5, 2011

Operational Risk in Managed Accounts Can Cause Problems

October 5, 2011 (PLANSPONSOR.com) -  A Cerulli report contends that while managed accounts are stable from an investment-risk and a regulatory standpoint, operational risk remains a concern. 
 
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Operational risk in managed accounts threatens to undermine the profitability and reputation of firms that do not mitigate these risks, Cerulli explains in its report, published in the third quarter issue of “The Cerulli Edge-Managed Accounts Edition.”

Cerulli analysts examined specific areas where managers have operational risk concerns. The analysis hones in on unified managed accounts (UMAs) and model-only portfolio submission, as well as with general participation in separate account platforms.

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“We asked asset managers about four facets of being on managed account platforms that contributed to operational risk. Three of the areas were identified by more than 75% of respondents. The one most often identified was trade order management, followed by delivering model portfolios (or paper portfolios), and fee processing,” writes Patrick Newcomb, senior analyst in Cerulli’s managed accounts practice.

When it comes to asset managers’ primary concerns with submitting model portfolios to overlay managers/UMA programs, receiving accurate compensation and information on sales and flows rank as the greatest concerns.

“For the most part, the responsibility for these two issues falls on the sponsor, leaving the asset manager with little control. Also, while model portfolio submission can be an avenue for building better relationships with sponsors, it can also build business risks to other products, should the model relationship hit rocky times,” says Sean Daly, Analyst in Cerulli’s managed accounts practice.

Part of asset managers’ anxiety around models stems from the fact that there is little uniformity across how sponsors and overlay managers implement models, says Cerulli, and there is little in terms of standardization from an industry perspective. Asset managers remain in a difficult place when it comes to tracking how their models are actually being executed upon once they leave the hands of the manager.

Benefits October 5, 2011

PSCA Releases Results of Annual Survey of 401(k) Plans

October 5, 2011 (PLANSPONSOR.com) -  The Profit Sharing/401k Council of America found that of the 820 companies that participated in a recent survey, less than half have an automatic enrollment feature. 
 
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The Profit Sharing/401k Council of America (soon to be known as the Plan Sponsor Council of America; see “PSCA Changes Name to Expand Organization’s Scope”) has released its 54th Annual Survey of Profit Sharing and 401k Plans. The survey provides up-to-date information on current practices and trends in profit sharing and 401(k) plans. It includes data on the 2010 plan-year experience of 820 companies with 10.5 million participants and $691 billion in plan assets. The survey contains 149 tables of data.

Highlights of survey results include: 

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Asset Allocation: The average plan has approximately 63% of assets invested in equities. Assets are most frequently invested in actively managed domestic equity funds (25.1% of assets), target-date funds (13%), stable value funds (9.9%), indexed domestic equity funds (8.8%) and actively managed international equity funds (8.4%)

Automatic Enrollment: 41.8 % of plans have an automatic enrollment feature. Of those plans that have an automatic enrollment feature, 82.3% use this feature with new hires only and 17.7% use it for all non-participants. The most common default deferral is 3% of pay, and the most common default investment option is a target-date fund. 

Company Contributions: Profit sharing plans tend to offer the most generous contributions, averaging 6.8% of pay. The average company contribution in 401(k) plans is 2.3% of pay and in combination plans it is 4.6% of pay.

Company Stock: 14.7% of plans allow company stock as an investment option for both participant and company contributions and 3.2% of plans allow company stock as an investment option for company contributions only.

Employee Eligibility: 89% of U.S. employees at respondent companies are eligible to participate in their employer's DC plan. Most companies allow employees to begin contributing to the plan immediately upon hire (59.2% of companies). Companies are more likely to have a one-year service requirement for non-matching contributions than for matching company contributions. 

Hardship Distributions: Hardship withdrawals are permitted in 89% of 401(k), 85.8% of combination, and 4.5% of profit sharing plans. 1.9% of participants took a hardship withdrawal in 2010, when permitted.

Investment Options: Plans offer an average of 18 funds for both participant and company contributions. The funds most commonly offered to participants are actively managed domestic equity funds, actively managed international equity funds.

PSCA's Annual Survey of Profit Sharing and 401k Plans is available for purchase at www.psca.org. 

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