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Has the Fiduciary Rule Fueled Advisor Hires?

More than two-thirds of plan sponsors now retain an independent investment advisor to assist with fiduciary responsibility – but they aren’t necessarily clear on the scope of that focus.

According to the Plan Sponsor Council of America’s 60th Annual Survey of Profit Sharing and 401(k) Plans, 69.5% of 590 respondents say they retain an independent advisor to assist with fiduciary responsibility separate from their recordkeeper. While one in five say they use a 3(38) advisor, and 36% use a 3(21) advisor, more than 4 in 10 43.9% aren’t sure. And while that uncertainty may simply be a matter of not remembering ERISA sections, it holds up pretty consistently across the board. Even among the largest plans (more than 5,000 participants), 37% weren’t sure of the advisor type.

Larger plans were more likely to employ an advisor’s services; 76.4% of the largest plans did, compared with 59.2% of plans with less than 50 participants. However, it was most common in plans with 200-999 participants, where 76.7% of respondents did so.

Advice ‘Slice’?

While advisors are increasingly prevalent, investment advice is less so – offered by just 34.8% of respondent companies:

  • 20.2% by a third-party web-based provider;

  • 30.8% by a registered investment advisor; and

  • 28.8% by a certified financial planner.

Of companies providing investment advice, the most common delivery methods are:

  • One-on-one counseling (68.5%)

  • Internet providers (45.7%)

  • Telephone hotlines (48.7%)

One-fourth of participants used advice when it was offered.

Auto ‘Increases’

Sixty percent of plans have an automatic enrollment feature. Once again, the feature is most common in large plans – 70% of plans with 5,000 or more participants report having automatic enrollment, in contrast to the third of plans with fewer than 50 participants.

While the most common default deferral remains 3% of pay (used by 36.4% of plans), more than half of those with automatic enrollment now have a default deferral rate higher than 3% of pay. Three-fourths of automatic enrollment plans automatically increase default deferral rates over time; a third increase the default deferral percentage over time for all participants, 12.0% do so for all under-contributing participants only, and one-third escalate it only if the participant elects it. The most common default investment option is a target-date fund, used by 63.7% of plans.

More than a quarter (28.4%) of respondents say they provide a suggested savings rate to participants – and while 6% was the most commonly suggested rate among those plans, 17.5% said they suggested more than 10%.

The availability of Roth contributions has doubled over the past decade. In 2007, just 30.3% offered a Roth option to their participants; in this year’s survey nearly two-thirds (63.1%) did.

Fee Sense

According to the survey, the majority of plan expenses are paid for by the company rather than the plan, with the exception of plan recordkeeping and investment management fees (though those are arguably the larger expenses). Forty-three percent of plans are charged a basis point fee for recordkeeping and administration, and a third (34.4%) pay a flat rate per participant. More than half of companies conduct a formal review of fees annually, and 30.3% review them more frequently.

Target ‘Practices’

Nearly three-quarters (73%) of plans offer a target-date fund, and more than one in five (22.2%) of plan dollars is allocated there – up from a mere 6.4% a decade ago. Most (86.4%) of the firms using TDFs use a packaged product. Not surprisingly, larger firms (those with 5,000 or more participants) were more likely to customize those offerings. Seventy percent of plans of plans use a qualified default Investment alternative (QDIA); at 77.5% of those plans, that QDIA is a TDF.

Most (59.6%) of those with TDFs rely on active management. Just 40.4% use passively managed options.

About 4 in 10 plans responding offer a professionally managed alternative to participants, though more than half of plans with more than 5,000 participants do.

Just 1 in 10 plans offer an in-plan annuity option to participants.

Most (87.6%) have an investment policy statement (IPS), with quarterly investment monitoring the apparent “norm” (61.4%), followed distantly by those who did so annually (19.6%).

Education ‘Precedents’

The most common reasons for providing plan education are to increase:

  • participation (71.4%);

  • appreciation for the plan (65.8%); and

  • deferrals (62.7%).

To achieve their education goals, the most common approaches used by plan sponsors include:

  • Email (64.1%)

  • Seminars/workshops (55.3%)

  • Enrollment kits (46.4%)

  • Internet/intranet (42.7%)

  • Fund performance sheets (30.9%)

Most (58.8%) companies allow employees to begin contributing to the plan immediately upon hire, and 47% of companies that provide a matching company contribution provide immediate eligibility to receive the match. About a third (31.9%) of plans with non-matching contributions provide immediate eligibility to receive them.

The vast majority of plans (88.9%) permit participants to borrow against their plan assets, consistent with the last several years. Just over half (55.1%) of responding plans permit participants to have one loan outstanding at a time, while 36.3% permit two loans. One-fourth of participants have at least one loan outstanding, with an average loan amount of $8,042.

More information about the Plan Sponsor Council of America’s 60th Annual Survey of Profit Sharing and 401(k) Plans is available at

NOTE: There will be a special workshop exploring the survey results and the implications for advisors at the NAPA 401(k) SUMMIT, April 15-17, 2018 in Nashville, Tennessee. If you haven’t registered, there’s still time (but the hotel blocks are filling) at