Research

DATA & RESEARCH | PLANADVISER February 2015

Attention to Detail

The unique opportunities of micro plans

By Alison Cooke Mintzer See Archive >
Attention to Detail
Art by Sam Lynn

In fact, to better understand the distinctive properties of micro plans, our Micro Plan Survey compared plans that have less than $1 million with those having $1 million to $5 million in assets. The potential to serve plans with under $1 million is even greater, as only 43.7% of them use an adviser.

In many areas of adviser support and plan design, micro plans fall woefully short of the standards found in midsize and large plans—creating openings for experienced retirement plan advisers to make a strong case when pitching their business to this market.

For instance, working with an adviser in a fiduciary capacity is not the norm for micro offerings; not even a third of them (29.5%) have an adviser with fiduciary status. In the instances where their plan’s adviser does have that role, 12.6% serve as a 3(21) fiduciary, 10.4% as both a 3(21) and a 3(38), and a mere 6.5% of micro plans have an adviser who is a 3(38) fiduciary only.

As to services, the top five that advisers offer to micro plans are: reviewing fund performance (90.6%), investment selection guidance (87.6%), evaluating/explaining provider fees (72.8%), group participant education (70.7%) and one-on-one participant education (70.1%).

It appears that micro plans could use help setting up their offerings; the micro plan participation rate averages 74.2%, with a mean account balance of $71,483. Ample opportunity to develop more targeted and effective plan designs awaits the adviser who works in the micro market, as fewer than one in five (19.2%) plans has automatic enrollment, and a scant 7.9% have automatic escalation. When they do use auto-enrollment, the plans most commonly default participants’ contributions at 3% of their salary, cited by 41.1%.

Advisers looking to improve participant outcomes can find similar opportunities in other plan metrics. For example, although six in 10 (59.6%) micro plans offer matching contributions, only one-third (35.5%) of those plans report that nearly all participants (over 90%) are contributing enough to maximize the match.

Plan design and participant outcomes are not the only potential conversation starters for advisers. With an average of 22.4 investment options offered, micro plans might be overwhelming their participants with too many choices. Additionally, only 43.6% of micro plans have an investment policy statement (IPS), which means that helping plan sponsors with their investment due diligence is yet another box prospecting advisers can check off in their sales meetings.