DC Plan Innovation Moves Down Market

Catherine Peterson, managing director and global head of the Insights program at J.P. Morgan Asset Management, recently sat down with PLANADVISER for a wide-ranging conversation about developments in the Employee Retirement Income Security Act (ERISA) industry.

She explained her firm just finished a large survey of nearly 1,000 plan sponsors, and among the interesting trends in the data is a clear indication that smaller plans are no longer just following the example set by their larger counterparts. Instead, small plan sponsors are quickly catching up on large plans in terms of implementing the latest best practices.

“Take the implementation of automatic enrollment; 85% of large plans with assets of $250 million and over use this feature, while 64% of all plans now do so,” Peterson noted. “Seventy-eight percent of all plans have identified a qualified default investment alternative.”  

Contextualizing these numbers, Peterson suggested the stats for the entire plan sponsor population, large and small, “right now are where large plans were just in 2015.” Given there are vastly more small plans than large, this is clear indication that smaller plans are rapidly improving their designs.

“The change in philosophy is really happening quickly and it has already materially improved the DC retirement system for participants on the ground,” she said. “The tide is lifting all plans, and a lot of that has to do with the education component coming from providers and advisers. It is clear that so many plan sponsors are taking the steps they need to take to strengthen their plans.”

Of course there are challenges facing these plans, Peterson warned—in the form of increased litigation risk, tightening fiduciary standards and weaker long-term growth forecasts—but she is encouraged to see such rapid progress occurring anyway.

“There is a unique opportunity right now for plan providers and advisers to capitalize on this and continue the trend of improving small plans,” she explained. “Advisers and providers have a clear role to play in constantly bringing their plan sponsor clients, large or small, new ideas and new best practices for their plans.”

While they are overall generally quite satisfied with the services they receive, interestingly, only 18% of the plan sponsors J.P. Morgan surveyed suggested their providers are always proactive about communications and delivering new ideas. This is up from 10% in 2013, “but it’s not a great number,” Peterson said.  “The same goes for advisers. In 2013, it was 14% who were viewed as proactive about communicating new best practices, and now it is 27%.”

One other trend made clear by the survey data: Plan sponsors expect a lot from their providers and advisers. “They want the ability to lift up the hood and see what’s underneath their basic plan performance metrics,” Peterson concluded. “It’s not just about the overall asset allocation for the plan—it’s about zooming down to the participant level and making sure the plan is being used appropriately by real people. Even with the improvements we have seen, there are still too many do-it-myself investors with poor diversification, people holding too much employer stock or too much cash. So it’s very important that we keep this momentum going.”