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Many defined contribution plan execs unclear on plan data


Noticeable—and sometimes stunning—numbers of defined contribution plan executives are uncertain, unsure or unaware of key financial and management issues affecting their plans.

A review by Pensions & Investments, a sister publication of Business Insurance, of recent surveys on DC plan management, behavior and governance shows the percentages of “don't know” or “not sure” answers from financial and human resources executives can reach high double digits. Among the examples:

• One survey found that 51.7% of DC plan executives weren't sure about the glidepaths of the target-date funds in their plans.

• Another said 37.5% of executives of plans that credit excess revenue sharing back to participants don't know how this happens.

• One broad survey of DC plans revealed that 28% of plan executives don't calculate plan costs.

• A survey of 403(b) executives said 46.2% didn't know what type of plan agreement governed their plans.

“I'm surprised at what certain plan sponsors still don't know about their total fees,” said Pamela Hess, director of retirement research at Aon Hewitt, Lincolnshire, Ill. “A lot of sponsors don't know what they could get (in terms of services or reduced fees) because they don't ask for it. They don't always ask the right questions.”

The various surveys—covering large and small plans, 401(k) plans as well as 403(b) plans and other DC plans—illustrate that while plan executives express concern about participants' understanding of retirement investing, the executives themselves fall short, too.

A survey by San Francisco-based Callan Associates found a string of double-digit “don't knows”: 13% about administrative fees for company stock; 37.5% about how the crediting of excess revenue sharing works; and 16.1% if their plans offer ERISA expense reimbursement accounts.

A report on the survey, published this month, characterized as “alarming” the finding that 19.4% of respondents didn't know about the proportion of funds in their plans that pay revenue sharing.

The survey featured responses by treasury and human resources executives at 99 DC plans—about three-fourths were 401(k) plans—with aggregate assets exceeding $85 billion.

The results were “surprising,” said Lori Lucas, executive vp and defined contribution practice leader at Callan. “There's a lack of certainty on how fees are paid.”

Although sponsors already receive a considerable amount of data about fees, “they don't necessarily seem to understand all of the data,” said Ms. Lucas. “In the past, sponsors asked their record keepers about fees, but it's in the record keepers' interest to educate them in a certain way. Sponsors need a more objective, third-party source for unbiased information.”

Sometimes, the executives just throw up their hands in frustration. In August, Aon Hewitt published results of a survey of 435 DC plan executives, in which 28% said they “have not attempted to calculate total plan cost.”

Among those who didn't calculate plan costs, 51% cited complexity as the reason for inaction, the report said. Twenty-five percent said they couldn't obtain the data, and 23% said cost calculations were either a low priority or not attempted.

The management of target-date funds produced a series of “don't knows” in several surveys. A November report by Denver-based Janus Capital Group Inc. said 31.2% of respondents weren't sure what types of target-date funds were offered by their providers, while 51.7% weren't sure about the target-date fund glidepaths.

“Neither the (executives') knowledge base nor the implementation has kept pace with target-date fund usage by participants,” said Russ Shipman, senior vp and managing director of Janus' Retirement Strategy Group. “Plan sponsors need to really bore into their decisions and take responsibility for them.”


The high percentages of “not sure” responses contrasted with another answer, in which two-thirds of executives said they were “confident that their employees understand the structure and intent of target-date funds,” Mr. Shipman said. “We continue to be intrigued by these findings.”

The Janus survey featured responses from 6,885 executives at plans ranging from less than $5 million in assets to those with $1 billion or more.

Although executives from smaller plans usually had the highest percentage of “not sure” answers, some percentages for large-plan executives were substantial. For example, 18.7% of executives from the largest plans weren't sure what target-date funds were offered by their record keepers, and 27.1% weren't sure about their target-date funds' glidepaths.

“At a fundamental level, a glidepath is the essence of a target-date fund,” Mr. Shipman said. “If sponsors are uncertain, one could say that they don't understand the target-date fund series.”

Target-date uncertainty appeared in other surveys, too. For example, a Towers Watson & Co. report issued in January 2011 noted that 20% of 334 DC plan executives in a survey didn't know where their plans' target-date funds made underlying investments.

Although target-date funds play a prominent role in qualified default investment alternatives, several surveys revealed confusion among plan executives.

An October survey by Harrison, N.Y.-based Diversified found that 12% of 272 DC plan executives didn't know if their plans had a qualified default investment alternative. The Janus Capital Group survey noted that 25% weren't sure which QDIA was best for their employees.

Another Towers Watson report, published in December, said 17% of 245 DC and defined benefit plan executives didn't know which members of investment or administrative committees had received fiduciary-duty training. Also, 9% said no committee member had been trained, while only 48% said someone with ERISA training attended every governance meeting.

“Since ERISA requires committee members and other fiduciaries to act with "care, skill, prudence and diligence,' failure to have the necessary ERISA expertise in an advisory capacity could lead to governance gaps and failures,” Towers Watson said.

The PSCA and Principal Financial Group in Des Moines, Iowa, recently collaborated on a survey of 712 executives at 403(b) plans, and some results were surprising to PSCA President David Wray. For example, 10% of the respondents said they didn't know if their plans were ERISA plans. “That's a big deal,” he said.

In addition, 34.6% didn't know if their plans had an investment policy statement, including 9.7% at the largest plans with more than 1,000 participants.

Mr. Wray said some uncertainty among executives on management issues could be attributed to plans changing designs to reflect a more institutional investment approach and to “nuances” of complex regulations.

Still, some responses remain startling. The survey said 46.2% of executives didn't know what type of plan agreement—there are only four possibilities—governs their plans. “That's pretty important,” said Mr. Wray, adding that 25.4% of executives at the largest plans couldn't identify their plan agreement.

Robert Steyer is a reporter for Pensions & Investments, a sister publication of Business Insurance.