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Callan: Expect Lower Fees and Fewer Proprietary TDFs

According to Callan’s recently released 2014 DC Trends Study, the 107 large and mega plans surveyed are expected to take aggressive action toward reducing both fees and the use of proprietary TDFs. They are also looking to continue the use of automatic features. The use of Roth plans, currently modest, is not expected to increase — as is the use of retirement income.

The study is available to Callan clients only. Highlights include:

• Plans offering the record keeper’s TDFs will decrease from 70% in 2011 to just 44% in 2014.
• Passive TDFs are on the rise, as is the use of passive funds in general, standing at 24% in 2013 versus 12% in 2012.
• More than a third of plans intend to make a TDF change in 2014, with the most common action changing fund managers.
• More plan sponsors understand revenue sharing and intend to renegotiate fees, with an emphasis on changing share classes; many expect to decrease their use of mutual funds.
• 17.5% of plans decreased the number of investment options in 2013, up from 13.5% in 2012.
• More plans used auto enrollment last year (58%) than in 2012 (52%), with many increasing default rates.
• Last year 43% of plans used auto escalation, which is not expected to increase substantially.
• Most plans do not offer retirement income — which is unlikely to change.
• More than 72% of QDIAs were TDFs.

Trends in the large and mega plans, especially related to fees and funds, tend to trickle down. Though smaller and mid-size plans like to use relevant peer groups, it’s good to know where the herd in front is headed.

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