While there is some consensus on automatic enrollment and escalation, there was less agreement among plan executives on the ideal default contribution for employees.
About 41% of plan executives said the ideal default contribution for auto enrollment should be 5% to 6%, while 26% favored a contribution of 3% to 4%, and 21% of the plan executives said 7% or more.
Eleven percent said the ideal default contribution should be 1% to 2%.
One consultant noted in the survey that a contribution of 10% is not enough to reach a full replacement benefit ratio. Several consultants suggested that contributions escalate up to 15% of salary.
Consultants and plan executives also expressed divergent opinions on the amount of control employees should have over the management of their accounts.
Sixty percent of the consultants supported the idea of plan sponsors controlling investment decisions such as asset allocation, while 20% each supported participant-led decision making and shared decision making.
Sixty-four percent of plan executives preferred shared decision making, while 26% supported participant-led decision making and 10% supported plan sponsor-led decision making.
Mr. Danaher said the vast majority of employees could be lured toward hot investments such as emerging markets and long-term bond funds because of the direction of the economy and the attention they receive in the financial press. Despite the fact that such investments could decline rapidly in a volatile economy, some plan sponsors are still averse to limiting participant decision making.
“Plan sponsors are playing a balancing act,” he said. “They understand the consultants but (they've) got a pool of employees to deal with, too.”
Many plan executives supported a “less-is-more approach” to investment options, including a “limited number of investment alternatives, including some annuity-type component and some minimum cash payment choices.”
One suggested that the ideal plan have “three doors”: “The first door would be a balanced/target date fund. The second would enable the employee to set up his or her own investments from a menu of not-too-complicated options from broad categories like equities, fixed income and alternative investments,” the unnamed survey respondent suggested. “The third door would be a brokerage option in which employees could buy individual stocks and use individual managers.”
Forty-four percent of plan executives suggested a menu of 11 to 15 investment options; 28% said six to 10; only 4% opted for the extreme of more than 30 options. (The remaining responses were split evenly among other ranges.)
Consultants were more conservative in the number of investment options they would offer employees. Forty percent each said three to five and six to 10 options should be offered, while 20% of consultants supported 11 to 15 options.
None of the consultants supported fewer than three options or more than 15.
Plan sponsors also overwhelmingly (76%) supported target-date funds as the best default option for auto enrollment.
Mr. Clifford said he is encouraged by the rapidity with which target-date funds have come to be considered the “de facto default option.”
“Target-date funds mitigate the destructive behavior individuals exhibit in their own management of their retirement,” he said. “Target date funds allow individuals to focus on what they should be worried about, which is the outcome rather than the selection of investment managers.”