Defined contribution plans can be thwarted in adopting practices such as auto enrollment and auto escalation by DC executives' uncertainty about plan design as well as by executives' misreading the interests of participants, according to J.P. Morgan Asset Management.
“We see addressable issues that may be impeding progress towards plan objectives,” according to a report by the New York-based money manager about a survey of 796 DC plan executives. DC plans need “a closer alignment” between their goals and their strategies, added the report, which is due to be published Aug. 21.
Although the survey found “a broad desire by sponsors to improve their plans,” executives “recognize they are not meeting their goals,” said Catherine Peterson, director of retirement insights at J.P. Morgan Asset Management. “There's still a lot of work to do.”
In some instances, reluctance by DC executives to adopt industry-recommended practices such as auto enrollment and auto escalation are due to concerns about antagonizing employees or to uncertainty about fiduciary protection for some plan design features.
Only 43% of plans have implemented auto enrollment, the report said. Among the top reasons for not offering this feature, 27% of executives cited a fear that employees would be upset, 19% said they “have not really considered” auto enrollment, and 19% said they are “not comfortable making the decision on behalf of my employees.“
The survey found only 21% of plans have added auto escalation. The top reasons for not offering this feature: fear of upsetting employees (30%), lack of considering this option (23%) and discomfort in making the decision on behalf of employees (20%), the report said.
“We consistently hear from plan sponsors that participants would be upset” if auto features are added, Ms. Peterson said, referring to discussions with J.P. Morgan clients. The survey, a first-time examination by her firm, wasn't restricted to J.P. Morgan clients.
Larger plans — those with assets of $250 million or more — were more likely to offer auto enrollment and auto escalation than other plans, Ms. Peterson said. For auto enrollment, 62% of larger plans offered this feature. For auto escalation, 42% of larger plans offered this feature.
Larger plans represented 16% of the survey's total sample size.
Plan executives appear more concerned than participants about auto features, Ms. Peterson said, noting that a 2012 J.P. Morgan survey of 1,009 participants showed 33% favored auto enrollment plus auto escalation, while 29% were neutral and 39% opposed it. (Due to rounding, the total is more than 100%.)
“We look at "neutral' as people saying they don't love it or they don't hate it,” she said. “People who are neutral aren't going to complain about auto enrollment or automatic contribution escalation.”