Defined Contribution Trends Indentified in Callan’s Survey

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Callan Associates’ 2011 DC Trends Survey, Defined Contribution Trends Survey: Positioning the DC Plan for the Future, was published in January 2011. Approximately 90 US companies, comprised of mostly large plan sponsors (80% had over $100 million in assets) were surveyed. The following findings were among the most relevant:

  • The outlook for employer contributions to defined contribution plans is looking brighter. 58% of plan sponsors that had reduced or eliminated company contributions over the last two years plan to reinstate them over the next year. 75% of those have already reinstated their contributions to the same level prior to the reductions. Additionally, not one of the sponsors surveyed said they planned on reducing or eliminating the company match in the future.
  • Plan sponsors continue to adopt plan automation features. Utilization of automatic enrollment and automatic escalation of contributions increased to about 51.3% and 46% in 2010 from approximately 44% and 34% respectively.
  • Unbundled plans (where the recordkeeper and trustee are independent from one another) appear to be gaining in popularity. The use of fully unbundled plan arrangements increased from approximately 30% in 2009 to nearly 35% in 2010.
  • A key area of focus for defined contribution plan sponsors continues to be fees. About 85% of the respondents claim they have calculated their plan fees within the past year and about 84% of those that performed the calculation went on to benchmark their plan fees as a result of their findings
  • Inflation ranked as a high concern for plan sponsors. Real return and TIPS mutual funds were the most frequently added plan investment choices in 2010.
  • Plan sponsors were still not comfortable with the fiduciary issues surrounding guaranteed income products. Despite sponsors’ desire to help their employees manage income in retirement, utilization of guaranteed income products has gained little traction.
  • The use of investment consultants is becoming more prevalent with nearly 72% of the respondents using them versus the approximated 65% last year.
  • Nearly 50% of plans maintain Roth contribution options (up from 28% in 2008).
  • The growth in target date funds appears to be stagnating. While roughly 70% of the plans offer target date funds as its default investment choice, growth appears to have stalled.

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