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Fees remain on top of DC plan executives’ minds — Callan survey

Defined contribution plan executives continue to make fee reviews a primary fiduciary focus, said an annual survey of defined contribution plans released Monday by Callan Associates.

More plans also have increased their usage of index funds with an eye toward reducing fees. In 2016, 11.9% of plan executives said they increased their use of passive funds in 2016, compared to the 2.4% of plans that increased their proportion of actively managed funds.

Lori Lucas, Callan Associates' executive vice president and defined contribution practice leader, said in a telephone interview that in speaking with plan sponsors, their embrace of index funds has come from a desire to reduce fees as opposed to philosophical reasons favoring passive over active funds.

Ms. Lucas said plan executives have told her, “We really want to have funds with low fees, and index funds can fit that category.”

Ms. Lucas also pointed out the rising use of passive funds in target-date funds. More than 50% of target-date funds were actively managed as recently as Callan's 2010 survey, while only 36.6% said they were actively managed in 2016.

Also, 47% of executives in 2016 reported they have a written fee payment policy, either as part of the existing investment policy or in a separate document. The news release on the survey said that is the highest amount yet reported in the 10 years Callan has conducted the survey. In 2015, 44.5% of participants said they had a written fee payment policy.

A move toward collective investment trusts away from mutual funds as investment options is another indicator that plans are looking closely at reducing fees. Nearly two-thirds of respondents offered CITs in 2016, up from 48% in 2012, the survey said.

Mutual funds, meanwhile, have decreased in usage to 84% from 92% of plans during that same period.

Automatic enrollment and automatic escalation also increased in 2016, with the latter increasing dramatically, as 63.2% of plans offered auto escalation in 2016, compared to 45.9% the year before. Meanwhile, 64.9% of plans offered auto enrollment in 2016, compared to 61% in the year before.

Callan interviewed 165 DC plan executives — clients and non-clients — in an online survey conducted in September and October of 2016. Most of the plans are 401(k) plans, but 457, 401(a) and 403(b) plans also were represented. More than 80% of the plans had more than $100 million in assets.