Defined contribution executives are still struggling to understand key elements of plan management and design ranging from fees to revenue sharing to fiduciary duties.
Answers to questions from multiple surveys reveal a string of double-digit “don't-knows,” according to Pensions & Investments' review of surveys by different firms on many subjects.
When P&I first looked at knowledge of DC plan basics in early 2012, large numbers of plan executives were uncertain about such fundamental matters as investment policy statements, target-date fund glidepaths and plan costs. (Pensions & Investments, Jan. 23, 2012).
The follow-up examination shows improvement in some areas, but it also illustrates continued uncertainty regarding crucial issues that can affect participants' savings and the risk of litigation
“If you don't know what you don't know, how do you ask the right questions?” said Robert Benish, interim president and executive director of the Plan Sponsor Council of America, Chicago.
“Fee policy is the weak link in the amount of "don't knows,' ” said Lori Lucas, the Chicago-based executive vice president and defined contribution practice leader for Callan Associates, referring to her firm's latest DC plan survey. “Despite fee disclosure regulations (which took effect last year), there's a lot of confusion about fees.”
In Callan's annual DC survey, published in January, 13.3% of plan executives said they didn't know their plan's method of accounting for company stock. There are two choices — share accounting or unitized accounting.
“This concerns us because this has been the subject of lawsuits — whether the accounting is prudent,” Ms. Lucas said. In addition, 11.1% didn't know if they have a written fee policy plan.
Another 23.5% of respondents didn't know what administration fees are charged for company stock. “For administrative fees, they (sponsors) should have that information at their fingertips because of the fee disclosure regulations last year,” Ms. Lucas said. ”Either they didn't receive the required disclosures from their providers or they didn't review them.”
The responses to this question are getting worse. In the previous year's survey, 13.3% of executives didn't know about the fees. In the prior year, 4.5% didn't know.
In an April 2012 survey by the Government Accountability Office, 48% of plan executives said they didn't know if their plans paid transaction costs, and 48% didn't know if their plans had revenue sharing arrangements.In the Callan survey, 17.8% of executives said they didn't know how their plans discuss revenue-sharing with participants. The survey also said 11.6% of those responding didn't know if their plans had ERISA expense reimbursement accounts, which allow plans to use excess revenue sharing funds for expenses such as plan communications and education.
“Sponsors should have spent most of last year focusing on this,” Ms. Lucas said.