Data & Research February 20, 2018

401k Averages Book Expanded to Include Plans With Larger Participant Balances

The book continues to show that plans with higher average account balances pay lower total fees.

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The 18th Edition 401k Averages Book shows 401(k) total plan costs declined for most size plans. Scenarios with 200 or more participants saw a decrease in total plan costs from last year.

The latest book was expanded to include 401(k) fee information on plans with large participant account balances. “With studies showing participant account balances exceeding six figures, we thought it was a good time to add a new section to the 401k Averages Book,” says Joseph W. Valletta, co-publisher of the 401k Averages Book.

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The latest book finds investment fees continued to decline. Scenarios with 200 or more participants saw a year over year decrease in total investment costs of between 0.01% and 0.03%.

There is a wide range between high and low-cost providers. The range of cost is greatest within the small plan market. The range of a plan with $1,000,000 in assets and 100 participants ($10,000 average account balance) is 0.72% to 2.80%. In addition, smaller plans continue to pay higher fees than large plans. For example, the average fee for a plan with $1,000,000 in assets and 100 participants ($10,000 average account balance) is 1.89%, while for a plan with $10,000,000 in assets and 1,000 participants ($10,000 average account balance) it is 1.39%.

Prior editions showed data for plans with $10,000 and $50,000 average account balances. With the addition of the $100,000 account balance information, financial professionals can choose from three sections of benchmarks. Each section is made up of eight different plan size scenarios.

“It is important to use a benchmark which reflects the characteristics of your plan,” says Valletta.

The 401k Averages Book 18th Edition is available for $95 and can be purchased by calling (888) 401-3089 or at www.401ksource.com.

Client Service February 20, 2018

Help DB Clients Stay Realistic About Mortality Assumptions

“It is important for actuaries for all types of pension plans, including those who work with multiemployer and public-sector plans, not to reverse expectations for mortality improvement in response to the latest data,”says Eli Greenblum, chief actuary for The Segal Group.

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The latest federal government report from the National Center for Health Statistics (NCHS) shows that life expectancy at birth declined for the second consecutive year, which could tempt defined benefit (DB) plan sponsors to conclude the latest data is good news for pension plan costs, according to Segal Consulting.

However, the firm notes that DB plan sponsors should look beyond the headlines, as life expectancy continues to improve for retirement-age Americans.

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“Recent mortality rates observed for the older population continue to support expected improvements in projected life expectancy for this age group, which drives pension costs,” says Eli Greenblum, chief actuary for The Segal Group. “It is important for actuaries for all types of pension plans, including those who work with multiemployer and public-sector plans, not to reverse expectations for mortality improvement in response to the latest data.”

According to the NCHS, between 2015 and 2016, death rates increased significantly for the under-45 age groups studied. In contrast, death rates decreased for the post-65 retirement-age groups.

In fact, researchers from the Society of Actuaries (SOA) measured an ‘anomaly’ in mortality rate measures for 2016. SOA finds the overall age adjusted mortality rate for both genders from all causes of death decreased by 0.6% in 2016.

“This decrease in overall mortality may seem to run counter to the [Center for Disease Control’s] CDC’s report that life expectancy at birth declined 0.1 years in 2016,” the researchers note. “Generally, a decrease in the mortality rate would be expected to produce an increase in life expectancy. However, both figures are correct. In this respect, 2016 was a somewhat anomalous year.”

When the Society of Actuaries (SOA) released its annually-updated mortality improvement scale for pension plans, MP-2016, incorporating three additional years of Social Security Administration (SSA) data on U.S. population mortality, it suggested U.S. mortality continues to improve, but at a slower average rate of improvement than previous years, which may decrease pension plan obligations slightly.

“As additional experience emerges, there may be refinements necessary in actuaries’ assumptions for pension plans, but they should be based on longer-term trends. We should be cautious about setting long-term assumptions based on shorter-term trends, even when those trends last a decade,” warns Jeff Litwin, The Segal Group’s corporate research actuary.

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