2015 PLANADVISER Micro Plan Survey
Perhaps one of the most telling findings from the 2015 PLANADVISER Micro Plan Survey is the increase in the number of retirement plans that work with an adviser and have $5 million or less in plan assets. That statistic has risen considerably in the past year to 65.9%, up from 52.0%, indicating that more plan sponsors are aware of their need for guidance and are turning to advisers for help. It may also suggest that advisers are finding worthwhile and profitable opportunities in this market.
The services that advisers offer micro plans fall considerably short of what specialist advisers present to larger plans, something advisers can keep in mind when pursuing business in this market. A mere 19.0% of plan sponsors have 3(38) fiduciary support, and only slightly more, 20.8%, use a 3(21) fiduciary—maybe surprising given the lack of sophistication and resources for running a retirement plan among smaller companies.
The top five adviser services for micro plans remain consistent with prior years: reviewing fund performance (89.8%), plan investment selection guidance (87.3%), one-on-one participant education (74.2%), evaluating/explaining provider fees (72.8%), and group participant education (70.8%). While reviewing fund performance and plan investment selection guidance are also the top two services provided by large plans—i.e., those with $200 million to $1 billion in assets—the top five services of advisers to large plans are then followed by: assistance with selection of plan providers, creating and monitoring an investment policy statement (IPS), and evaluating/explaining provider fees.
When it comes to what are now considered plan design best practices, micro plans lag significantly behind mid-size and large plans. Under a quarter (22.0%) of micro plans automatically enroll participants—possibly because such small employee bases do not require such design—while a mere 14.7% automatically escalate deferrals each year. By comparison, 64.4% of large plans auto enroll participants, and 28.3% auto escalate participants’ contributions. Nearly one-fifth of micro plans (18.0%) default participants’ deferral rates at less than 3%, while 46.6% default them at 3%. The majority, 44.0%, of micro plan sponsors make participants wait six months to become eligible to participate in the plan; only 17.5% permit eligibility immediately upon hire. While 66.9% of micro plan sponsors offer a company match, only 33.0% of participants maximize the match.
Between the sponsors’ choice of plan design and participants’ usage of the plan, it is clear that micro plans need advisers to educate at both the sponsor and participant levels. And, while larger plans eagerly embrace financial wellness programs, financial education falls woefully short among micro plans. One-third (33.3%) offer education on investing basics/strategies, but a mere 20.3% offer education on saving or budgeting, and 9.2% on retiree health care planning.
Such findings might suggest that advisers who serve small and midsize plans might want to explore even smaller plan segments before their competitors beat them to it. As the survey does not ask plan sponsors to qualify their adviser in relation to the pool of his peers in general—e.g., advisers to micro plans could be specialists or those with only a handful of plans—it can be inferred that many plan sponsors are still in need of specialized support.