PPA a Top Ranked Influence on DC Plan Management

The 2006 Pension Protection Act (PPA) and the Department of Labor’s (DOL’s) fee disclosure requirements issued in 2011 and 2012 tied as the top-ranking event influencing the management of defined contribution (DC) plans, according to Callan’s 2016 Defined Contribution Trends report.

The PPA set the stage for wide adoption of automatic features in DC plans and made Roth contributions permanently available for DC plan participants, among other things. Callan says the influence of the PPA has resulted in 61% of plan sponsors offering auto enrollment in their DC plans, and four out of five of those plan sponsors also auto escalate employee deferrals.

In addition, Callan’s survey found one in five plan sponsors have engaged in a re-enrollment and 62% have Roth designated accounts in their plans.

PLANSPONSOR’s own DC Survey of thousands of plan sponsors of all sizes also finds 62% have designated Roth accounts. While it found 41% of plan sponsors overall use auto enrollment, more than 60% of large and mega plans do so. Twenty-eight percent of plan sponsors re-enrolled existing employees not participating in the plan, 13% re-enrolled existing employees participating but not at the default contribution rate, and 2% re-enrolled employees participating but not invested in the plan’s qualified default investment alternative (QDIA).

A more telling indication of the effect of the PPA, according to the PLANSPONSOR DC Survey, is that the total number of plans using auto enrollment in 2006 was just 17%.

NEXT: Improving fiduciary position

In Callan’s survey, plan sponsors ranked updating or reviewing their investment policy statement (IPS) as the most important step to improving their fiduciary position. Fee review was ranked as the second most important step.

Three-fourths of plan sponsors reported they benchmark fees as part of fee calculations, 45% have a written fee payment policy in place, and 53% are likely to rebate revenue sharing.

Target-date funds are the most prevalent default investment in DC plans, according to the DC survey; 86% of plan sponsors say it is their default. Twenty-two percent evaluated the suitability of their glide paths in 2015, and 30% plan to do so in 2016.

Fifty-nine percent of plan sponsors that have money market funds in their DC plans are still evaluating actions to take following Securities and Exchange Commission (SEC) regulations. 

The three most important factors in measuring plan success, as ranked by respondents to the Callan survey, are contribution rates, participation rates and cost effectiveness.

Plan sponsors say their top priorities in 2016 are compliance, fund/manager due diligence and plan fees.

Callan fielded the 2016 Defined Contribution Trends Survey in the fall of 2015. Survey results include responses from 144 plan sponsors, primarily large and mega 401(k) plans. A report of key findings can be downloaded from https://www.callan.com/research/DC/. A free registration is required.