According to the 2014 Retirement Plan Survey conducted by HANYS Benefit Services, approximately one-half of the responding retirement plan sponsors offer automatic enrollment. Offered in conjunction with automatic escalation, such features can positively impact participant behavior and improve retirement readiness. This article examines some best practices to be considered when implementing automatic features in defined contribution plans that can produce greater results per dollar of employer cost. Background The utilization of automatic features in defined contribution plans has increased significantly since they were first introduced as part of the Pension Protection Act of 2006 (PPA). More plans are adopting these provisions, resulting in higher participation rates among employees. Although this is a positive trend, certain design features actually thwart the success that could otherwise be achieved. Specifically: relatively low default deferral rates result in lower savings; autom...

Many participants lack the ability, time, and/or desire to effectively make sound investment decisions and manage their accounts on an ongoing basis. Traditionally, many plan sponsors felt their responsibility was to offer a broad range of investment options together with employee education. The results, all too often, were that participants were overwhelmed with choice and rarely availed themselves of the education. In recent years, the trend has been to limit the number of investment options and guide participant behavior. The investment menu structure may be just as important as the actual investment options themselves. An effective menu design will address the various participant behaviors: Properly done, a well-designed investment menu can direct behaviors and give participants the confidence they need to feel comfortable with their investment decisions. Read Improving Participant Outcomes: An Action Plan for Plan Sponsors and start developing your action plan to improve particip...

Plan sponsors should review their current plan design features and consider how they drive participant behavior. Studies have shown that participants will often choose deferral rates at a level to obtain the maximum employer match. By stretching out the matching formula, the employer cost stays the same but the employee is encouraged to save more. For example, a plan that matches 100% on the first 5% could move to a 50% match on the first 10% of salary. The employer cost remains constant at 5% while at the same time employees are motivated to contribute up to the 10% level. It is important to limit participants’ ability to use the money for something other than its intended purpose: retirement. Plan sponsors should consider limiting, if not eliminating, loan availability within their plans. Participants rarely understand the true impact of taking a loan from their account—“borrowing from themselves” is a common justification employees use. Although the current economic environment may ...

January 2016 was a particularly difficult month for equity investors, with the major U.S. equity indices in correction territory. China's economic slowdown and negative earnings in the energy sector are the most commonly cited factors for the possibility of a global economic slowdown. This paper, What's Driving the Recent Stock Market Volatility? , provides retirement plan fiduciaries and investors insight into the stock market volatility, including: the role of China and the energy sector as market drivers;  "dashboard" metrics showing where equity investors should focus their attention in 2016;  an analysis of the long-term relationship between corporate earnings trends and S&P 500 Index performance; and  an overview of the price/earnings (P/E) ratio and how much investors are willing to pay for those earnings.  If you have any questions about this paper , or would like to begin talking to a trusted advisor, then please get in touch by calling (80...

Until recently, participant outcomes were not a great concern to most plan sponsors; even now, a relatively few number of plan sponsors use income replacement as a measure of plan success. A recent survey conducted by PLANSPONSOR magazine showed just 3.5% of plan sponsors use projected retirement income as a metric to assess their plans. 1 Instead, the goal was to offer a plan with good investment choices, competitive fees, and a recordkeeping platform that would minimize the administrative burden on the employer. Due to industry pressures and technology advances, the unbundling of these programs has driven down administrative costs and provided better choices to employees. However, the decisions of if and how to participate in the plan remain with the employee. The same factors contributing to lower administrative costs and improved investment selection also drove an increase in the complexity of the plan, at least as perceived by the employee. Although plans were now “better,” they...

Survey participants’ responses in our Retirement Survey Report varied widely as to how often their investment committee met to discuss different kinds of retirement plans. However, most participants generally met on a quarterly basis, particularly so with regard to 401(a) profit sharing plans (78%), 401(a) money purchase plans (75%), and Employee Retirement Income Security Act (ERISA) 403(b) plans (59%). By contrast, 29% met semiannually to discuss 401(k) plans—versus 57% who met quarterly—with an additional 26% meeting semi-annually to address issues related to ERISA 403(b) plans. Only 11% of survey participants said their investment committee reviews 401(a) profit sharing plans annually. Similarly, 20% of investment committees for 457 deferred compensation plans also review their plans annually. This is in keeping with general best practices, which encourage investment committees to meet at least annually and, ideally, on a quarterly basis so critical issues and questions can be ad...

In our 2014 Retirement Survey Report , about 79% of survey participants said they have an investment committee. Given a complex environment of regulatory scrutiny and fiduciary liability exposure, a committee specifically charged with investment oversight is a sound risk management strategy for plans and organizations of all types and sizes. Although they will differ from one organization to the next, best practices suggest an investment committee’s responsibilities and duties include: developing an investment policy statement; establishing a formal process to manage the plan’s investment strategy; determining and implementing investment decisions; establishing procedures for selecting and monitoring investment options; selecting and removing fund managers and evaluating their performance; and reviewing investment management fees. As these duties suggest, it is also a best practice to ensure that an investment committee is appropriately empowered to make and carry out relevant investme...