While defined contribution plan executives advocate changes in plan design and management, their words don't necessarily match their actions, according to a survey by consultant NEPC LLC and Pensions & Investments.
For example, the results for sponsors preparing qualified default investment alternatives to address the unique characteristics of individual plans were a "little surprising," said Ross Bremen, a partner at Boston-based NEPC and a principal author of the survey.
Even though they say comprehensive data is valuable, a number of sponsors aren't adequately using the data to develop their QDIAs. "This is an area where work needs to be done," Mr. Bremen said.
And when asked what is the best way to make sure participants don't outlive their assets, sponsors cited annuities or "other retirement income offerings" as their top choice — yet relatively few offer those options. "It was a little inconsistent that there was such high-concept support but so few use it," Mr. Bremen said.
The online survey of 169 employers with 220 DC plans — corporate, public, non-profit and union — was conducted from mid-August to mid-September. Among employers with DC plans, 52% also had defined benefit plans. Thirty-seven percent of the DC plans had assets of $1 billion or more; another 37% had assets of less than $100 million. The middle group ($100 million to $999 million) accounted for the rest.
As DC plan assets grow, Mr. Bremen said sponsors should be taking greater advantage of the opportunities afforded by the Pension Protection Act of 2006 to improve their plans, most notably in the use of target-date funds, managed accounts or balanced funds as QDIAs. "It's critical to look at demographics to make sure you have the proper QDIA," he said.
When asked about their QDIA selection process, 25% of surveyed plan executives said they didn't do a "deep dive" — a detailed use of plan participant data — to prepare the QDIA. Another 21% only looked at demographics once when the QDIA was established.
On the plus side, 43% said they reviewed plan demographics periodically to check on changes in the workforce, the survey said. Eleven percent of plans lacked a QDIA, but some of those are non-ERISA plans.
When looking at plan size, the survey found that 48% of the largest plans ($1 billion or more in assets) reviewed plan demographics periodically. Midsize plans ($100 million to $999 million) had a 49% rate, and the smallest plans (less than $100 million) had a 35% rate.
However, the largest plans had the worst no-deep-dive results (28%) vs. the midsize plans (20%) and the smallest plans (24%).
When all plan executives were asked which demographic variables they chose establishing a QDIA, 61% cited participants' age, followed by participants' savings rate (38%), participants' wages (36%) and participants' plan balances (29%) among nine choices. Only 6% selected gender — the lowest rated factor. Multiple answers were allowed. The largest plans were the most likely to consider a broad range of demographic factors in selecting a QDIA, the survey said.