Sponsors Big and Small Strengthening Plans

A change in philosophy is happening quickly and has already materially improved the DC retirement system, according to Catherine Peterson with J.P. Morgan Asset Management.

Catherine Peterson, managing director and global head of the Insights program at J.P. Morgan Asset Management, recently sat down with PLANSPONSOR for a wide-ranging conversation about developments in the Employee Retirement Income Security Act (ERISA) industry.

She explained her firm just finished a large survey of nearly 1,000 plan sponsors, and among the interesting trends in the data is a clear indication that smaller plans are no longer just following the example set by their larger counterparts. Instead, small plan sponsors are quickly catching up on large plans in terms of implementing the latest best practices.

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“Take the implementation of automatic enrollment; 85% of large plans with assets of $250 million and over use this feature, while 64% of all plans now do so,” Peterson noted. “Seventy-eight percent of all plans have identified a qualified default investment alternative.”  

Contextualizing these numbers, Peterson suggested the stats for the entire plan sponsor population, large and small, “right now are where large plans were just in 2015.” Given there are vastly more small plans than large, this is clear indication that smaller plans are rapidly improving their designs.

“The change in philosophy is really happening quickly and it has already materially improved the DC retirement system for participants on the ground,” she said. “The tide is lifting all plans, and a lot of that has to do with the education component coming from providers and advisers. It is clear that so many plan sponsors are taking the steps they need to take to strengthen their plans.”

Of course there are challenges facing these plans, Peterson warned—in the form of increased litigation risk, tightening fiduciary standards and weaker long-term growth forecasts—but she is encouraged to see such rapid progress occurring anyway.

While they are overall generally quite satisfied with the services they receive, interestingly, only 18% of the plan sponsors J.P. Morgan surveyed suggested their providers are always proactive about communications and delivering new ideas. This is up from 10% in 2013, “but it’s not a great number,” Peterson said. “The same goes for advisers. In 2013, it was 14% who were viewed as proactive about communicating new best practices, and now it is 27%.”

One trend made clear by the survey data: Plan sponsors expect a lot from their providers and advisers. “They want the ability to lift up the hood and see what’s underneath their basic plan performance metrics,” Peterson concluded. “It’s not just about the overall asset allocation for the plan—it’s about zooming down to the participant level and making sure the plan is being used appropriately by real people. Even with the improvements we have seen, there are still too many do-it-myself investors with poor diversification, people holding too much employer stock or too much cash. So it’s very important that we keep this momentum going.”

Treasury to Wind Down myRA Program

The department said demand for and investment in the myRA program has been extremely low.

The U.S. Department of the Treasury announced that it will begin to wind down the myRA program after a thorough review by Treasury found it not to be cost effective.

The myRA program was launched in 2015 as a way for individuals to set up automatic direct deposit contributions to myRA through their employer, fund a myRA account directly by setting up recurring or one-time contributions from a checking or savings account, or at tax time, direct all or a portion of a federal tax refund to myRA. The program required an initial contribution of at least $25 and automatic ongoing contributions of $5 or more every payday.

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The Treasury Department’s review was undertaken as part of the Trump Administration’s effort to assess existing programs and promote a more effective government. The department said demand for and investment in the myRA program has been extremely low. American taxpayers have paid nearly $70 million to manage the program since 2014.

“The myRA program was created to help low to middle income earners start saving for retirement,’ said Jovita Carranza, U.S. Treasurer, in the announcement. “Unfortunately, there has been very little demand for the program, and the cost to taxpayers cannot be justified by the assets in the program. Fortunately, ample private-sector solutions exist, which resulted in less appeal for myRA. We will be phasing out the myRA program over the coming months. We will be communicating frequently with participants to help facilitate a smooth transition to other investment opportunities.”

A myRA Program Update on the Treasury Department’s website says existing accounts will remain open and participants can continue to manage their accounts until further notice. During this time, participants will be able to continue making deposits and their accounts will continue to earn interest. The department will notify participants over the coming weeks of next steps and relevant deadlines regarding the transfer or closure of their accounts.

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