Fees, default options dominate defined contribution industry talk

PALM BEACH GARDENS, Fla. — Fees and qualified default investment options were among the hottest topics at Pensions & Investments' 16th annual East Coast conference here.

James Delaplane, a partner in the law firm of Davis & Harman LLP, Washington, and the keynote speaker who opened the conference, said the fee disclosure bill introduced by Rep. George Miller, D-Calif., will retain the index fund requirement that had met resistance from some members of Congress as well as financial service companies and plan sponsors.

“George Miller will be bringing his fee disclosure bill to the floor in April. The most significant part is that (Mr.) Miller is retaining the requirement that a plan have an index fund in its lineup. The House will vote this summer and it will pass,” predicted Mr. Delaplane, who added that it will pass in the Senate as well.

Turning his attention to the 2008 presidential election, Mr. Delaplane asked attendees to disregard his previous predictions. “I won't revisit my predictions from last time. October was a long time ago,” Mr. Delaplane said over laughter, referring to his picks of Sen. Hillary Clinton, D-N.Y., and former Massachusetts Gov. Mitt Romney as the candidates for president. He now predicts Sen. Barack Obama, D-Ill., will win the White House.

As for Congress, he predicted the Democrats will hold control in the House and Senate after the November election. “The GOP holds 22 of the 34 Senate seats up in 2008,” he said.

Panelists also turned their attention to the issue of qualified default investment alternatives. The Pension Protection Act of 2006 encouraged companies to automatically enroll participants into one of three qualified default investment alternatives, or QDIAs: balanced funds, target-date funds or managed accounts. The Department of Labor finalized the proposed regulations late last year.

Among the speakers were two plan executives who use target-date funds as the QDIA and one who uses a balanced fund.

Deborah Macchia, senior manager of corporate benefits at Hitachi America Ltd., Tarrytown, N.Y., said officials at her $400 million 401(k) plan “looked at all the options and decided it (target-date funds) made the most sense for our employee population. We were very comfortable with the decisions being based on an employee's age.”

Gail Nichols, director of compensation, benefits and human resources systems for NCCI Holdings Inc., Boca Raton, Fla., said: “When we changed vendors, we looked into changing our default from a balanced fund to target date. We felt it was the best and easiest choice for participants.” NCCI's 401(k) plan has $25 million in assets.

For Linda Garcia, vice president of human resources at Rooms To Go Inc., Seffner, Fla., a balanced fund for the company's $40 million in DC assets was the best fit for employees.

“I think a default option is an extremely important decision for plans to make. I can't say what is best for everyone, but I think everyone should look at all the options closely,” said Ms. Garcia.

In a separate panel on QDIAs from the vendor perspective, Anne Lester, managing director and senior portfolio manager for JPMorgan Asset Management Inc., New York, said larger plans are more likely to consider commingled target-date funds as default options.

“It's not as simple as just picking a family of mutual fund target-dates anymore,” said Ms. Lester. A commingled target-date fund is a pooled investment option that offers lower fees than a retail target-date mutual fund; commingled versions typically are used by larger plans.

In a breakout session on building the ideal core menu, service providers said DC plan executives are slowly beginning to look at more global investment options.

MacKenzie Hurd, vice president and defined contribution specialist at Capital Guardian Trust Co., Los Angeles, said only 5% of DC plans have emerging markets funds in their core lineup.

“More plans are starting to look at this. They see that a global equity offering could complement their domestic equity. You will see more of this,” said Mr. Hurd.

Raymond Martin, president and chief executive officer of CitiStreet Advisors LLC, Quincy, Mass., outlined in a speech the importance of retirement savings, financial planning, and planning for retiree health care.

Regarding retirement, Mr. Martin said, “Automatic enrollment alone is not the solution. We need to have a reasonable savings rate and automatic escalation for new participants and all (existing) employees.”

Contact Jenna Gottlieb at [email protected]