What Are Plan Sponsor Concerns About the Fiduciary Rule?

Though its implementation date and eventual scope may be uncertain at the moment, a new survey finds that plan sponsors do have some areas of concern about the fiduciary regulation.

According to Callan’s 10th annual “Defined Contribution Trends Survey,” the areas that plan sponsors believe will be most impacted in 2017 by the Department of Labor’s (DOL’s) fiduciary regulation are:

  • 42.7% – the plan’s printed materials, website, and other educational materials
  • 42.7% – communication regarding plan rollovers
  • 41.6% – reviewing the education or counseling specialists

However, more than a third are either unsure (18.0%) about what areas of their plan will be affected – or believe there will be no impact (19.1%).

Of course, that survey was conducted prior to the 2016 presidential election in November.

Advice ‘Slices’

The vast majority of DC plan sponsors (83.6%) offer some form of investment guidance or advisory service to participants, and online advice remains most prevalent (54.1%). That said, one-on-one advisory services, though lagging at 42.9%, were up from 35.9% in 2014. Online advice was down from 59.8% in 2014. The reasons for not offering or planning to eliminate advice were topped by cost to participants, low participant demand/utilization – and “not a high priority.”

More than 8 in 10 plan sponsors say they engage an investment consultant, though more than a third (34.6%) were not sure whether their consultant had discretion over the plan (a 3(38) advisor) or not (a 3(21) advisor).

Policy Policies

In the coming year, most plan sponsors surveyed (60.8%) are very unlikely to add new/additional investment options, while only 5.2% of are very likely to do so. Sponsors most commonly listed managed accounts or financial wellness services as the service they might add in 2017.

While more than half (60.4%) of plan sponsors say they have reviewed their investment policy statement (IPS) in the past 12 months, fewer than half (44.7%) have reviewed and updated it over that same period of time. A year ago, when 84.3% of plan sponsors reported that they had reviewed their IPS in the past 12 months and 63% had updated it.

Over 47% of plan sponsors have a written fee payment policy in place, either as part of their investment policy statement (21.1%) or as a separate document (26.3%) – the highest level recorded in the Callan survey.

‘Target’ Practices

In 2016, the top three reasons for selecting or retaining target date funds (consistent with prior years) were:

  • Performance
  • Fees
  • Portfolio construction

Those three were clearly ahead of the other criteria, which included risk, number, type and quality of underlying funds. Distant – and dead last – was whether the funds are managed by the recordkeeper.

Fund Types

Nearly two-thirds of DC plans offered collective trusts in 2016, up from 48.3% in 2012. Over a third of plan sponsors reported that they offered a stable value collective trust (34.8%), while nearly half (47.8%) reported that they offered a collective trust that was not a stable value fund.

Among plan sponsors offering separate accounts in 2016, it was somewhat more common that the separate account was a stable value fund (27.8%) versus another asset class (22.6%).

Of those offering a brokerage window, 59.3% offer a full window, while the remaining 40.7% offer a more limited mutual fund window.

Largely in response to the 2016 money market reform rules from the Securities and Exchange Commission, many plan sponsors have changed to a different money market fund or eliminated their money market fund altogether. Most of these (60.5%) switched from prime or retail funds to government money market funds. Only 13.2% changed to a stable value fund.

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