Learning from the DC Participant Experience

A Cogent Research study provides insight into what DC plan participants want from their plans and plan providers.

Half (51%) of study respondents have access to an adviser through their defined contribution (DC) plan, 19% do not and 30% do not know if they have access to an adviser. Among those with access, the most preferred method by every age group to work with the adviser is in person, but this is especially true for the oldest and youngest participants. Forty percent of the Silent Generation (born 1925 to 1942) want in-person meetings with advisers compared with 48% of Gen Y.  

When presenting the study findings during a Web event, Marie Rice, practice director of custom research at Cogent Research, said the findings about DC participants’ reaction to match contributions surprised her. When the match is 4% or less, participants tend to contribute a higher rate than match; the deferral rate equalizes to the match at 5% to 6%. However, when the match is 7% or higher, participants again defer more. Rice noted that this is something employers should consider when creating a match formula.  

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Regardless of the size of their employers, two-thirds of participants say employers should offer automatic deferral increase and automatic rebalancing features in their DC plans. So, if employers are feeling hesitant about implementing automatic features, employees would welcome them, Rice said.  

Another “aha” moment for Rice occurred when she asked about sources of retirement income, the study respondents pointed to their DC plan, employment income and Social Security. Rice said this made her realize the definition of retirement is changing; the three-legged stool of retirement income used to be a pension, Social Security and personal savings. But, pensions and personal savings are not legs of the stool anymore, and Social Security is ranked last of the three.

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Provider Satisfaction  

Eighty-three percent of participants responding to Cogent Research’s DC Participant Experience study want direct contact from their DC providers about their retirement savings progress. Forty-nine percent said they want personal emails, 38% regular mail and 34% work emails. Fifteen percent would like phone calls, and 11% one-on-one meetings.

Nearly eight in 10 (78%) want contact from their providers at least annually (40% would like contact twice per year and 19% monthly). Rice said this indicates plan sponsors may want to send advisers out to employees more than once a year, and they should encourage providers to contact participants.

Participants indicated they are most satisfied with enrollment materials (62%), account statements (65%) and website and online capabilities (63%) of their providers. This was followed by retirement planning tools (55%), investment planning tools (54%) and the number of investment options (53%).

The highest driver of provider satisfaction participants cited was investment performance, but only 47% indicated they are satisfied with this. Rice said providers should not be upset because they have no control over this, but should look at the other drivers they do have control over; number of investment options and website an online capabilities ranked second and third for drivers of satisfaction with DC providers.  

DC participants are most likely to consider their DC providers first for rollovers; however, the main reason cited by those who said they would not go to their DC provider first was they do not know enough about the provider firm. Rice pointed out this is a reminder for providers to use websites and account statements to educate participants about more than their DC plans.  

The study report breaks out some statistics for 401(k), 403(b) and 457 plans. For the study, 4,926 DC participants currently in a plan or formerly in a plan were surveyed between August 24 and October 5. To request the study report, visit http://goo.gl/TLezZ.

SEC Filed 147 Actions Against Advisers

The Securities and Exchange Commission filed 147 enforcement actions against investment advisers and investment companies, one more than the previous year’s record number.

The SEC’s near-record total 734 actions in 2012 included more cases involving highly complex products, transactions, and practices, including those related to the financial crisis, trading platforms and market structure, and insider trading by market professionals.

The SEC also announced that it obtained orders in fiscal year 2012 requiring the payment of more than $3 billion in penalties and disgorgement for the benefit of harmed investors. It represents an 11% increase over the amount ordered last year. In the past two years, the SEC has obtained orders for $5.9 billion in penalties and disgorgement.

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The SEC filed numerous actions against advisers as a result of proactive measures that identify threats early on so that action can be taken to halt the misconduct and minimize harm to investors. In 2012, several actions were the result of the division’s investment adviser compliance initiative, which looks for registered investment advisers who lack effective compliance programs designed to prevent securities laws violations.

The SEC also filed actions charging three advisory firms and six individuals as part of the Aberrational Performance Inquiry into abnormal performance returns by hedge funds. Other actions against investment advisers included cases against UBS Financial Services of Puerto Rico and two executives for misleading disclosures relating to certain proprietary closed-end mutual funds, Morgan Stanley Investment Management for an improper fee arrangement, and OppenheimerFunds for misleading investors in two funds suffering significant losses during the financial crisis. UBS paid more than $26 million to settle the SEC’s charges, while OppenheimerFunds paid more than $35 million for its violations.

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The agency filed 134 enforcement actions related to broker/dealers, a 19% increase over the previous year. Broker/dealer actions included charges against the New York brokerage firm Hold Brothers On-Line Investment Services and three of its executives for their roles in allowing overseas traders to access the markets and conduct manipulative trading through accounts the firm controlled. The defendants in the Hold Brothers action paid a total of $4 million to settle the SEC’s charges.

A Latvian trader and electronic trading firms were also charged for their roles in an online account intrusion scheme that manipulated the prices of more than 100 NYSE and Nasdaq securities.

“The record of performance is a testament to the professionalism and perseverance of the staff and the innovative reforms put in place over the past few years,” said Mary L. Schapiro, chairman of the SEC. “We’ve now brought more enforcement actions in each of the last two years than ever before including some of the most complex cases we’ve ever seen.”

According to Robert Khuzami, director of the SEC’s division of enforcement, it’s not a matter of simple numbers, but the increasing complexity and diversity of the cases filed that show how successful the division has been. “The intelligence, dedication and deep experience of our enforcement staff are, more than any other factors, responsible for the division’s success,” Khuzami said.

The sustained high-level performance comes two years after the division underwent a significant reorganization. The results in 2012 were aided by many of the reforms and innovations put in place in the past two years, such as increased expertise in complex and emerging financial markets, products and transactions, through enhanced training, the hiring of industry experts and the creation of specialized enforcement units focused on high-priority misconduct; a flatter management structure; streamlined and centralized processes and the improved use of information technology; and a vastly enhanced ability to collect, process and analyze tips and complaints.

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