2014
Micro Plan Survey

Micro plans have unique plan design characteristics—and
challenges
2013 PLANADVISER Micro Plan Survey

Although retirement plan trends are often discussed by way of assessing large or mega-sized plan sponsors, trends in the micro plan space—in plans holding less than $5 million in assets—are equally important. Possibly more so, because this is the most common retirement plan size.

It is essential to review these plans, and understand their characteristics, as micros differ greatly from their larger peers. Even within the less than $5 million market, there can be differences—why the PLANADVISER Micro Plan Survey examines plans with less than $1 million and with $1 million through $5 million in plan assets separately.

Although these plans are not always of interest to the retirement plan advisers who look to work with larger clients, they still present ample opportunity. Most micro retirement plans work with a retirement plan adviser: More than six out of 10 (61.1%) have an adviser; nearly four out of 10 (38.9%) do not.

Also, only about 23% of the plans in this space have an adviser serving in a fiduciary capacity: 8.9% of sponsors say their advisers are both ERISA [Employee Retirement Income Security Act] Sections 3(21) and 3(38) fiduciaries; 9.7% say 3(21) only; and 4.3% say the adviser is a 3(38) fiduciary. About one-third (34.3%) say their adviser does not serve as a fiduciary, while the plurality (42.8%) are unaware of their adviser’s fiduciary status.

Few micro plan sponsors take a formal approach to running their retirement plan: 46.2% have no investment committee, and 40.6% lack an investment policy statement (IPS). Reviews for micro plans also take place less frequently than those for larger plans, with 38.9% of micro plans formally reviewing their providers once a year. Almost half (45.7%) have not calculated their fees in the past year. Among those that have, 56.9% analyze their administrative costs and fees annually. And for those plans that do calculate fees, the majority (56.4%) benchmark their administrative fees, while 42% rely on their retirement plan adviser to provide the benchmarking data.

With an average participation rate of 74.2%, fewer than one out of four micro plans (23.4%) automatically enroll participants. However, nearly half (49.4%) of micro plan sponsors make their employees wait longer than six months before they are eligible to participate in the company plan. On the other hand, 40.7% either permit their employees to begin participating immediately (18.1%) or within three months (22.6%).

Flexibility is evidently key for micro plans, as 85.6% allow hardship withdrawals and 74.5% have loan provisions. However, micro plan participants seem to be heeding the warnings to dip into retirement savings only as a last resort: Only 11.4% of participants have outstanding loans, and a scant 1.7% have taken a hardship withdrawal.

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