Data & Research May 6, 2024

DB and DC Participant Access Update

The BLS’ most recent data reports 67% of private workers have access to a defined contribution plan and 15% can use a defined benefit plan.

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Private industry workers have a roughly 67% chance of having access to a defined contribution retirement plan and a 15% chance of being offered a defined benefit option, according to the most recent estimates from the U.S. Bureau of Labor Statistics.

Of those workers with DB access, 11% are taking advantage of the benefit, according to the government department. In the DC space, 49% of workers are reportedly saving into the plans. The data, which was released April 19, is drawn from a national compensation survey conducted by the BLS, which is part of the Department of Labor.

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The report also highlighted access by industry. Private workers in financial activities, information and manufacturing showed the most access across both DC and DB plans.

Meanwhile, workers in leisure and hospitality had below-average access in both areas, with professional and business services, construction and education and health services showing below-average access to DB plans. Construction was the only other industry showing below-average access to DC plans.

Defined Benefit

Access to DB plans has dropped from 20% availability in 2010 to15% in 2020 and holding steady since then, according to a separate spotlight report by BLS.

Kate Pizzi, a partner and senior consultant at Fiducient Advisors, does note that a shift in how companies are thinking about retirement benefits may be shifting the landscape for DB plans—perhaps in part due to IBM re-opening a once frozen DB.

 “IBM’s recent announcement to re-open their once frozen DB plan via a ‘cash balance’ design signals a potential shift in how companies approach retirement programs,” Pizzi says. “While pension risk transfers are prevalent, and we expect to see them continue, recent legislative changes coupled with a growing focus on attracting and retaining talent may catalyze a reevaluation of defined benefit pension plans, possibly leading to a stabilization or even resurgence in their prevalence.”

Percentage of private industry workers with access to and participation in defined benefit plans March 2023

Access
Participation
All industries
15%
11%

Defined Contribution

In the DC space, six out of eight industries have above-average access to saving in the plans, with many industry watchers predicting growth in both access and uptake due in part to the effect of federal and state-level retirement plan legislation, mandates, and tax incentives.

Vincent Smith, partner, defined contribution practice leader along with Pizzi at Fiducient Advisors, expects workplace plan participation rates to increase in coming years in large part due to retirement legislation in the SECURE 2.0 Act of 2023 and state-sponsored retirement plans and mandates.

“Automatic enrollment requirements for new plans, increased access for part-time workers, incentives for small businesses as well as contributing employees are SECURE 2.0 provisions that should lead to increased utilization,” Smith says. “Similarly, offering state-sponsored retirement savings vehicles to workers who do not have access to an employer-sponsored plan should materially improve overall retirement savings.”

Percentage of private industry workers with access to and participation in defined contribution plans March 2023

Access
Participation
All Industries
67%
49%

Compliance May 6, 2024

What the Fiduciary Rule Means for Investment Menu Advisement

Advisers may have to revisit their menu designs for small businesses, but compliance with this part of the rule is expected to be lighter than others.

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The Retirement Security Rule, finalized in April by the Department of Labor, will require that investment menu designs and sales must follow the obligations of loyalty and prudence under the Employee Retirement Income Security Act. Previously, transactions of this kind were often considered one-time transactions and therefore not a fiduciary act.

In the final release, DOL wrote that “The Department has not changed its position from the proposal that presenting a list of investments as having been selected for and appropriate for the investor (i.e., the plan and its participants and beneficiaries) will not be carved out from ERISA fiduciary status.”

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The department added that “When a firm or financial professional provides individualized recommendations to a plan on the construction of a prudent fund lineup, and otherwise meets the terms of the rule’s definition, the investor is entitled to rely on the recommendation as fiduciary advice intended to advance the plan’s best interest,” the DOL argued.

Jason Roberts, the CEO and founder of the Pension Resource Institute, says that this element of the final rule should be an “easy lift from a compliance perspective” and “less disruptive operationally” for retirement plan advisers and providers.

He explains that anyone dealing with an ERISA plan, including a non-fiduciary, must provide a written description of services and indicate if they are acting in a fiduciary capacity under current rules. He notes that providers may have to re-evaluate their offerings to be sure they meet ERISA fiduciary standards.

The DOL cited a study from Morningstar several times in its release that explains that this element of the rule will save plans sponsored by small businesses $55 billion in fees over the course of ten years, in part by reducing conflicts that can lead to higher fees for proprietary products.

Speaking of plans sponsored by smaller businesses, Morningstar wrote: “Some of these investment fees look outlandish compared with the investment universe, and we believe that the proposed rule and PTEs [prohibited transaction exemptions] would result in plan fiduciaries examining their investment lineups and the fees their plans pay.”

Because of the rule, providers “will need to ensure their recommendations are prudent and their fees are reasonable. Plans that currently have significantly above-average costs are unlikely to meet these standards, resulting in the firms providing them advice to recommend changes,” Morningstar added in their comment letter.

Morningstar recently stood by this argument as it relates to the final rule.

Brian Graff, the CEO of the American Retirement Association, which endorsed the rule, says that “the principal reason we support the rule is that it fills that regulatory gap.”

He explains that investment menu designs provided on a one-time basis were excluded because the previous five-part test required advice to be given on an ongoing basis. Graff adds that this element will help “ensure the fees are not higher than necessary due to conflicts of interest.”

Many in the retirement industry are anticipating relatively rapid growth in small, startup retirement plans in coming years in part due to federal tax incentives and state mandates. Cerulli Associates recently forecast that the retirement plan market would grow from 668,419 plans at the end of 2022 to nearly 1 million by the end of the decade.

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