PLANADVISER - January/February 2022 - 4

data points //
Opportunities Abound for Micros
The smallest DC plans do have means to catch up to their larger peers
Where Micros' Sponsors Can Improve
All Plans
T
he micro-plan market, identified
in the 2022 PLANSPONSOR
Defined Contribution (DC) Plan
Benchmarking Report as plans with
less than $5 million in assets, cannot
be assumed to be simply a smaller
version of its larger brethren-it faces
challenges unique to the plan, and
sponsoring-company, size.
About one-third of
the report's
respondents are micro-plan sponsors:
5.1% of the plans are of under
$1 million in DC assets, and 29.2% are
of $1 million to $5 million in DC assets.
Some of the most effective plan
design-such as the use of automated
features, employer-plan match add-ons
and systematic withdrawal plan
options-is underutilized or not offered
in this market. For instance, only 22% of
the $1 million to $5 million plans, and
17% of the under $1 million plans use
auto-enrollment vs. 43% of the respondents'
plans overall. Auto-escalation
follows in line, with 6% and 7% of the
two sizes of micros, respectively, vs.
22% of the plans overall.
The significance of these factors,
as most advisers know,
cannot be
underestimated. In doing research for
its paper " Automatic Enrollment: The
Power of the Default, " Vanguard found
that, over time, 90% of participants
who are automatically enrolled in a
plan increase their contributions, either
automatically or on their own. In plans
with auto-enrollment but no automatic
increase, after three years, one-third of
participants overrode their employer's
default and raised their own deferral
rates, and one-quarter overrode their
employer's rate, raised their deferral
and signed up for auto-escalation.
Micro plans also lagged larger plans
in fiduciary best practices such as
getting plan investments reviewed on
a quarterly basis and having an investment
committee to monitor investment
costs. While plans overall increasingly
have added an investment committee,
a large gap in doing so remains between
Offers a true-up matching contribution
Offers professionally managed account services
Offers indexed/passive investments
Offers a systematic withdrawal plan option
*Investment policy statement. †
Target-date funds.
Source: 2022 PLANSPONSOR Defined Contribution Plan Benchmarking Report
the micro and larger plans. Forty-one
percent with $1 million to $5 million
and 51% with under $1 million have no
investment committee.
An adviser might suggest to clients
in this market that they outsource
some tasks to him or ask him for fiduciary
training. On average, about half as
many micro-plan sponsors get fiduciary
training as sponsors of larger plans get.
Skilled advisers can be of significant
service in this area by educating microplan
sponsors about their responsibilities.
They can help these clients,
particularly with complex areas of fiduciary
responsibility such as monitoring
fees and investment options. Without
more support, these sponsors can miss
opportunities available to improve plan
outcomes. -Judy Faust Hartnett
36%
25%
58%
39%
16%
10%
40%
24%
20%
21%
40%
22%
Offers automatic enrollment
Uses automatic escalation
Has had formal fiduciary training since 2019
Has a written IPS* for the plan
Has investment options reviewed quarterly
Has an investment committee for the plan
Uses TDFs†
as the default investment
Is unsure of/Doesn't know the default investment
Allows workers to join the plan on hire
Allows workers to join the plan after 1 year
Offers a stretch match
43%
22%
44%
64%
39%
79%
76%
6%
35%
21%
23%
<$1mm $1mm - $5mm
17%
6%
21%
38%
9%
49%
35%
35%
21%
42%
11%
22%
7%
25%
46%
17%
55%
60%
14%
17%
39%
15%
4 | planadviser.com January-February 2022
http://www.planadviser.com
PLANADVISER - January/February 2022

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