2018
PLANADVISER Micro Plan Survey

The micro-plan market—what the 2018 PLANADVISER Micro Plan Survey defines as plans with less than $5 million in assets—is the most plentiful part of the defined contribution (DC) industry. And it is growing every day. Anecdotal evidence from advisers who serve this market says these clients highly value the adviser’s services; the advisers, in turn, develop strong ties with their sponsor clients, who wear many hats and are less knowledgeable about retirement plans than those at larger firms.

Although the majority—69%—of micro plans work with an adviser of some sort, there is obviously room for more adviser support. Micro-plan sponsors generally expect their adviser to work on investments and education. Ninety-one percent of micro-plan sponsors report that their adviser helps them review fund performance, and 87% say their adviser helps them select investments. The next most common services are evaluating and explaining provider fees, cited by 71% of sponsors; group participant education, by 70%; and one-on-one participant education, by 69%. This may mean there is ample room for advisers offering full plan reviews and support to serve the market, instead of narrowly focusing on certain plan elements.

Another area where a skilled adviser may have the opportunity to gain new clients is in helping clarify the role of a fiduciary. Nearly half (48%) of micro-plan sponsors are unsure whether their adviser is a fiduciary and, if so, what kind. Just one-fifth (20%) say their adviser is a 3(21) fiduciary, and 17% say he is a 3(38) fiduciary. By comparison, the 2017 PLANSPONSOR DC Survey reveals that a far greater percentage of larger plans have an adviser who works in a fiduciary capacity, more likely as a 3(21) fiduciary than a 3(38). Among plans in the $500 million to $1 billion range, for instance, 61% have a 3(21) adviser and 11% a 3(38) adviser.

Plan design is another area where micro plans significantly trail other plans and where advisers can put their clients on a better path. The Micro Plan Survey indicates that a mere 20% of these plans automatically enroll participants, and just 13% use automatic escalation. The most common deferral rate for micro plans with auto-enrollment is 3%, used by 45% of them. This is in line with plans of all sizes, as the DC Survey shows that 41% auto-enroll participants at a 3% deferral rate. Although we have been hearing about 6% becoming the “new 3%” at the higher range of the market, the survey shows there is still much work to be done, as 3% remains the most common deferral rate for plans in the $500 million to $1 billion range, used by 36% of plans of this size.

Micro plans also make employees wait longer to participate than do larger plans. Micros are the most likely to keep their company’s workers waiting two years or more to be eligible, true at 62% of these plans. Conversely, among plans of all sizes, the most common practice is to let workers dive right into retirement saving immediately upon hire, cited by an average 36% of sponsors—and this spikes up dramatically to 80% among plans in the $500 million to $1 billion range and 84% of plans with more than $1 billion of assets.

Like most retirement plans, on average, micros appear to have ample room for improvement, with an average participation rate of 77%, only slightly below the 79% rate among plans of all sizes, and an average balance of $78,546, trailing the $97,903 average for the broad sweep of plans.

Art by Claire Merchlinsky