Investment Menu Simplification on Sponsors' To-Do Lists

Strategic Insight, an Asset International, Inc. company, released its latest “Defined Contribution (DC) Research Suite Report,” which indicates investment menu simplification is becoming noticeable among large plans. In 2012, 15% of plans with more than $500 million in assets said they removed or planned to remove investment options from their plan. Each year fewer plans of this size intend to add new investment options.

“The percentage of plan sponsors that planned to reduce investment options increased from 6.3% in 2010 to 8.1% in 2012,” said Bridget Bearden, SI research analyst and author of the report. This action, she said, seems to be connected with the size of plan assets. As previously mentioned, with plans having more than $500 million in assets, 15% have or plan to remove investment options. Of plans with less than $1 million in assets, only 4% said the same, and with plans having between $10 and $50 million in assets, only 9% said the same.

The research also found in 2012, 56% of plan sponsors said that they were increasing their participant education or content, up from 50% in 2010. Supporting these initiatives is the fact that plan sponsors most frequently cited participant education as their biggest challenge.

“About 15% of plan sponsors said that personalized communications, print or electronic, were the most effective channel for education,” said Bearden, with other plan sponsors noting that online websites and interactive tools were the most effective for its participants.

Other findings of the report include:

• Plan sponsors have vowed to increase their due diligence on investment managers each year since 2010;
• Overall, plan sponsor preference for target-date funds as the qualified default investment alternative (QDIA) for their plans increased between 2011 and 2012. The most significant reason behind the increase was the perception that target-date funds were the best QDIA option based on correct usage by participants;
• Each year, between 5% and 6% of plan sponsors indicated they did or would change their recordkeeper. In 2012, this translated to approximately $228 billion of defined contribution (DC) money in motion across recordkeeping relationships;
• As of 2012, one out of six plan sponsors said they changed their recordkeepers in the past three years. The most frequently cited reasons for change were the desire to lower cost and increase the quality of service;
• The majority of plan sponsors believe meeting with the participants directly (either in one-on-one or in group settings) is the most effective channel for education;
• The most popular method of measuring plan success is the participation rate, where 62% of plan sponsors report using it. Other common measures of success include deferral rates, the percent of participants maximizing the employer match, and plan design benchmarking. However, one-quarter of plan sponsors report having no formal measure of success; and
• Only half of plan sponsors agree their participants will reach their retirement savings goals by age 65.

The data in the report was drawn from surveys of plan sponsors conducted by PLANSPONSOR magazine between 2010 and 2012. Between 6,000 and 7,000 plan sponsors took part in these surveys. Retirement plans with less than $50 million in assets make up the majority of the survey base.