Morningstar says women build better DC plans

Taking notice that women are playing a bigger role in defined contribution plan administration, researchers at Morningstar Inc. wanted to know if greater gender diversity in plan administration led to better practices.

The answer is a resounding "Yes," according to a study that measured three characteristics of what the Chicago-based research firm considers enlightened plan design.

"We find that the probability of a plan offering these services is higher if the plan administrator is female, and the differences are statistically significant," said the Morningstar report. "In other words, female plan administrators run better plans than their male counterparts."

The report, "Wonder Women: Why Defined Contribution Plans Benefit from Female Plan Administrators," was issued March 2.

"The effect is incredibly strong," said David Blanchett, head of retirement research, in an interview, referring to the link between female DC administrators and higher quality plans as measured by the three factors — use of auto enrollment, offering of defaults (primarily target-date funds) and compliance with a series of ERISA best practices guidelines.

Using Form 5500 data, Morningstar researchers tracked the increasing percentage of female plan administrators over time and then matched those results with the growth of those three factors.

The best practices component is defined by compliance with ERISA Section 404(c). Compliance "relieves plan sponsors and other fiduciaries from liability from losses resulting from participants' direction of their investments," the report explained.

Compliance is voluntary and "is assumed to be a 'signal' for quality overall plan governance," the report said. Plans that signify compliance "are assumed likely to have better plan governance procedures than those without."

The best practices include, among other things, offering a broad range of investments and providing adequate information to participants about investment options.

Morningstar chose the Form 5500 data because "we wanted to find factors that were unambiguous," said Julie Varga, vice president, investment and product specialist, in an interview. Ms. Varga and Mr. Blanchett said they were unaware of other research tying gender diversity among DC plan administrators to DC plan quality.

Administrators checked boxes in the Form 5500 to signify that their plans offered defaults, employed auto enrollment and complied with Section 404(c). Because the Form 5500 only requires a plan administrator's name, Morningstar had to establish the probability that the administrator was male or female. Morningstar also was unable to assess administrators' ethnicity from this document, Ms. Varga said.

Women are playing a bigger role in DC plan administration, according to Form 5500 data. In 2000, an average 32% of DC plan administrators were women. By 2009, it was 42%. In 2017, the last year for which research was conducted, it was 49%.

To assess the impact of plan quality linked to female administrators, Morningstar also looked at the auto enrollment, default investments and Section 404(c) data from 2009 through 2017. Researchers chose this period because 2009 was the first time auto enrollment and defaults had been included in the Form 5500. The Section 404(c) information had been listed in previous Form 5500 filings.

Morningstar found that the percentage of all plans offering auto enrollment rose to 31.4% from 11.5% during this period. The percentage of plans using defaults — primarily target-date funds — rose to 89.2% from 58.1%. The Section 404(c) compliance percentage rose to 95.3% from 87.3%.

"There is clear evidence that the probability of offering the respective service initially (2009) or adding (2017) is lower if the plan administrator is male," the report said.

Ms. Varga, who said the research took six months, added that Morningstar welcomes comments about the report, noting that her firm might look at other variables in the future to expand its research.