Plan Sponsors are Increasing Attention to Investment Decisions

In a press release, Grant Thornton said plan sponsors have determined an Investment Policy Statement (IPS) is critical to decisionmaking by retirement plan investment committees. Eighty-two percent of sponsors surveyed said they have an IPS in place.

Almost half (45%) of plan sponsors reported that their IPS was created by a third-party consultant or adviser. Forty percent said they consistently review their IPS to ensure investment strategy and guidelines accurately represent the decisionmaking process.

The survey found a clear majority (72%) of retirement plan participants surveyed reported that plan sponsors are doing a good job of clearly documenting how decisions to choose or remove plan investment options have been made.

PPA Influence on Plan Design

Grant Thornton’s 2008 Plan Sponsor Retirement Study also found passage of the Pension Protection Act (PPA) in 2006 has led to plan design changes that are increasingly affecting retirement savings for participants. Qualified Default Investment Alternatives (QDIA) guidelines issued by the Department of Labor following PPA passage has resulted in growth of the use of target-date funds within retirement plans. Seventy-seven percent of plan sponsors contemplating changes to their default fund option reported that they were moving to risk-based or target-date funds.

In addition, almost two out of five (39%) plan sponsors surveyed now offer automatic enrollment, and more than one-fourth (27%) are considering adding the feature. The most common default percentage used by sponsors offering automatic enrollment is 3% (53%). More than half of plan sponsors (52%) said they also offer automatic rebalancing of participant investments.

A majority of plan sponsors (53%) said they make investment advice available to participants, with nearly one-third (31%) providing advice electronically. Seventy-three percent of plan sponsors are providing targeted participant education with almost all (87%) of that education coming from third-party vendors or consultants.

The survey found the most common match rate offered by sponsors surveyed is 25% or less (37%) followed closely by 51% or more (35%).

Grant Thornton found that only 17% of sponsors have begun discussing with auditors how they expect Financial Accounting Standards Board (FASB) statement 157 to impact financial statements and benefit plans. FAS 157 enhances guidance on how to measure assets and liabilities at fair value and consolidates fair value measurement into one accounting standard. It also introduces new disclosures intended to highlight the reliability of fair value measurements (See Deloitte: Pay More Attention to New FASB Valuation Standard ).

Although the majority of the respondents (60%) indicated they engage their plan auditors to perform limited scope audits when the election is available to them, less than 15% said they recognize that the certified values are based on the best information available at the time the trust reports are issued, which Grant Thornton says may or may not be fair value which is what is generally required for Form 5500 and financial reporting purposes.

In addition, less than half (49%) of plan sponsors surveyed said they request and review their service providers' Statement of Auditing Standards 70 (SAS 70) which documents their service provider's internal controls and provides a framework of user organization controls that plan sponsors should implement.

The survey was conducted online from October through November 2007, with 183 plan sponsors participating.