403(b)s Embrace ‘Auto’ Features
More than two in 10 not-for-profits now automatically enroll participants
IN its survey of 608 not-for-profit organizations, the Plan Sponsor Council of
America (PSCA) found that many of
those organizations are improving their
403(b) plans, particularly by enhanced
use of automatic plan features.
Twenty-one percent of 403(b)s now
automatically enroll their participants, up from 19% in 2016 and 16.2%
in 2014. Among that 21%, 52% pair
using auto-enrollment with automatic
escalation, up from 43% in 2015.
The percentage of plans with a
default deferral rate of 3% or less
dropped by half since 2015, while the
percentage of those defaulting north
of 3% increased from 22% in 2016 to
34%. In addition, organizations saw
average employer contributions rise
from 4.7% in 2015 to 5% this year.
The 403(b) plans with a qualified
default investment alternative (QDIA)
now overwhelmingly use target-date
funds (TDFs) as opposed to money
market funds—66% vs. 10%.
“Over the past several years, the
PSCA survey has shown a steady
increase in the use of automation
and plan design enhancements,” says
Aaron Friedman, national practice
leader at Principal Financial Group,
which sponsored the survey. “Auto-
mation is leading to greater plan
enrollment, deferral rate escalation
and employee contributions. The
addition of these features tangibly
helps participants boost retirement
readiness in practical and customized
ways.” —Lee Barney
403(b) Adoption of Plan Design Enhancements
More DC Plans Using CITs
Competitive pricing is putting this vehicle on the map
CERULLI’S recent report “U.S. Defined
Contribution Distribution 2017:
Re-Evaluating the Use of CITs in DC
Plans” suggests that even “perennial
cynics” are beginning to see the distribution opportunity collective investment trusts (CITs) present in the U.S.
defined contribution (DC) plan market.
According to Jessica Sclafani,
associate director at Cerulli, asset
managers that currently do not offer
collective trusts or offer a limited
number of investment strategies in
a collective trust vehicle are “sharp-
ening their pencils and evaluating
where a collective trust vehicle may
create an opportunity to offer more
competitive pricing.”
As the CIT product set expands, it
is important for retirement plan fidu-
ciaries to follow the market develop-
ments to ensure their participants
are presented with cost-efficient and
competitive investments. In fact, says
Sclafani, in today’s evolving market-
place, DC plan mandates “can be won
or lost by the difference of a few basis
points [bps].”
“Mutual funds consistently repre-
sent greater than half of total 401(k)
plan assets,” she notes. “The next-
largest investment vehicle by 401(k)
plan assets is CITs, which hold almost
one-fifth of total 401(k) plan assets at
this point. Together, mutual funds and
CITs hold close to three-quarters of
401(k) plan assets, making them the
most widely used investment vehicles
for 401(k) plans.”
Given the momentum that continues
to build behind CIT investment vehi-
cles, Cerulli believes there is room for
the trusts to expand from their current
share of the 401(k) plan market by
taking a piece of it from mutual funds.
In a survey of 401(k) plan sponsors
cited by the reporting, nearly one in
five indicate they anticipate switching
the vehicle of at least one investment
option from a mutual fund to a CIT in
the near future. —John Manganaro
21%
Automatically
enroll participants
52%
That auto-enroll
participants
pair it with auto-
escalation 34%
Automatically
enroll participants
at a rate higher
than 3%
66%
Use TDFs
as the QDIA
Source: Plan Sponsor Council of America with Principal Financial Group
