Trading in defined contribution plans in August was amongst the lowest on record, according to the Aon Hewitt 401(k) Index.
Just
0.11% of total balances traded in the month—the second lowest monthly
total ever (0.10% in April 2012). No days in August had above-normal
trading activity. The average daily trading activity for the month was
0.013%, the lowest monthly level since Aon Hewitt began tracking trading
activity in 1997.
When trading did occur, bond funds received
the most inflows ($86 million), followed by GIC/stable value funds ($42
million) and emerging markets funds ($26 million). Asset classes with
the most outflows included company stock funds ($83 million), large U.S.
equity funds ($61 million) and small U.S. equity funds ($15 million).
After
combining contributions, trades, and market activity in participants’
accounts, the percentage in equities at the end of August was 64.9% a
decrease from 65.8% in July. New contributions continue to favor stocks,
with 65.6% of employee contributions investing in equities—a slight
decrease from 65.7% in July.
Most DC Plans Have Fixed-Fee Recordkeeping Arrangements
The asset-weighted average expense ratio for defined contribution (DC)
retirement plans is currently 0.42% versus the 2006 level of 0.57%, according to NEPC.
The 11th Annual NEPC Defined
Contribution Plan and Fee Survey finds the asset-weighted average
expense ratio for defined contribution (DC) retirement plans is
currently 0.42% versus the 2006 level of 0.57% when NEPC first conducted
its study.
Since 2012, investment management fees have dropped
from 52 basis points (bps) to 42 bps. Recordkeeping fees have declined
from $92 per participant to $57 per participant.
Eighty-two
percent of plans have re-contracted their recordkeeping fees since 2013,
which has led 51% of plans with to have a fixed-fee recordkeeping
arrangement, based on the findings.
In terms of plan design, the
survey shows that the median number of plan investment options for
participants is 22, the same as last year. Among those investment
options, target-date funds (TDF) are still the cornerstone of defined
contribution offerings, as these turnkey solutions are available in 94%
of plans. Furthermore, 88% of plans use TDFs as their qualified default
investment alternatives. While much has been written about the growing
popularity of “passively managed” investment options, virtually no
respondents in the survey are 100% passive.
The survey indicates
that 34% of plans include passive TDFs and about 43% of plans have the
makings of a passive tier to complement active options. The median
number of passive core offerings is three, and 10% of plans added an
index fund in 2015 as a new or replacement offering.
Lifetime
income offerings are now offered by 5% of plans versus none in 2012. The
percentage of plans offering stable value funds remains unchanged at
47%, the same level as 2012. Prevalence didn’t decline significantly
following the credit crisis and it hasn’t increased as a result of low
interest rates and money market reform.
In 2006, just one in four
plans offered brokerage services, and this year nearly half (49%) of
plans have this feature, with 54% offering full brokerage and 46%
offering only mutual funds. However, only 1% of employees use this
feature.
Company stock remains a fixture in retirement plans,
offered in 28% of plans. Approximately 60% of public companies offer
these securities.
NEXT: Fees for health care sponsors’ retirement plans
NEPC, which advises on $55 billion in health care institutions’ DC
plan assets, has tracked health care retirement plan trends as part of
its DC Plan and Fee Survey since 2013.
The survey revealed that
asset-weighted average expense ratio for health care DC plans is 0.50%
(versus 0.42% in corporate DC plans), down from 0.64% in 2013.
Health
care DC plan sponsors have been slower than overall DC plan sponsors to
shift away from traditional asset-based recordkeeping contracts (30%
vs. 51%).
This year’s survey shows that the retirement plan
structure for health care companies is evolving to resemble those in the
corporate DC space, though varied plan types (e.g., 403(b), 401(a),
401(k), etc.) still presents a complicated landscape. Health care plans
are innately more complex, often grappling with larger boards, and
extensive merger and acquisition (M&A) activity in this industry
also means that health care entities often have multiple plans to
contend with.
“Health care plan sponsors are doing yeoman’s work
when it comes to adapting to a rapidly changing retirement landscape,”
says Timothy Fitzgerald, a consultant on the NEPC health care team.
“They’re tasked with managing multiple plans with differing rules, like
Hercules wrestling the Hydra. But like corporate America, they are
heading in a positive direction for their plan participants today and
have made tremendous strides over the last few years.”
The 11th
Annual NEPC Defined Contribution Plan and Fee Survey had 117 respondents
from DC plans with $127 billion in aggregate assets, representing 1.4
million plan participants. The average plan size of the respondents was
$1.1 billion and each plan had more than 12,000 participants.
On September 28 at 11:00 EST, NEPC will be hosting a webinar to cover
key findings from its 11th annual Defined Contribution Plan & Fee
Survey. Registration is here.