2020
PLANADVISER Micro Plan Survey

A Market in Need

Micro plans have much to gain from adviser help with fiduciary matters

The micro-plan market, which the 2020 PLANADVISER Micro Plan Survey defines as plans with under $5 million in assets, excels in several areas. For instance, according to the 2019 Defined Contribution (DC) Survey, which supplied the data on the following pages, the $1 million-to-$5 million segment of micro plans surpassed “all plans”—80% to 61%—in providing one-on-one education. Those larger micros also bested all plans—76% to 58%—in group participant education. This may be because such services are easy to provide when a plan is micro-size, allowing for the adviser to build relationships with participants. Moreover, notably, and perhaps due to on-site education, micros outdid larger plans in terms of 90%-plus participants maximizing match contributions: 30% of the $1 million-to-$5 million plans vs. 26% of plans overall.

Micro-plan sponsors do face challenges, however—for instance, with plan management. Some providers prefer working with larger plans, and sponsors face high administrative costs, due to what is typically their low asset class. Therefore, they are apt to adopt safe harbor provisions that eliminate some fiduciary and regulatory concerns. Twenty percent of the $1 million to $5 million segment, and 12% of plans overall, did not calculate or benchmark costs in 2018 and had no plans to do so in the future. Those groups increased to 24% and 14%, respectively, in 2019.

The larger micro plans were more apt to employ fee equalization strategies than our previous survey found: 31% compared with 18% in 2018. This was likely driven by improved recordkeeper capabilities. Still, the use of such strategies was about half that in larger plans, where the adoption rate increased—51% up to 70%—as plan size grew.

Micros lagged far behind larger plans in fiduciary best practices such as having an investment committee. While plans overall increasingly have added an investment committee, a large gap remained between micro plans and larger plans. Forty-one percent of micros’ $1 million plus segment lacked an investment committee while just 18% of all plans did.

Advisers can play a role in helping micro-plan sponsors, particularly with complex areas of fiduciary responsibility such as monitoring fees and investment options. Without more support, these sponsors can miss opportunities available to them to improve plan outcomes.

Something for advisers and their clients to ponder is whether the sponsor should outsource tasks to the adviser or ask him for fiduciary training. Approximately one in three micro-plan sponsors had some training in the past two years, vs. roughly 75% of larger plans. —PA

Art by Dion MBD