Extensive Plan Data Reveal Key Design Features and Trends
A new in-depth study of 401(k) plans by BrightScope and the Investment Company Institute (ICI) finds that the great majority of employers that sponsor 401(k) plans—more than three-quarters—contribute to their plans, using a range of formulas when they provide matching contributions. The report, released today, also reveals that plans offer a wide variety of investment choices and that mutual fund fees in 401(k) plans have trended down.
The comprehensive study, “The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2014,” analyzes the most recent detailed data available from the Department of Labor on a wide range of private-sector 401(k) plans. The analysis first explores the presence of employer contributions across the universe of about half a million 401(k) plans. Next, focus shifts to details in plan design among more than 50,000 large 401(k) plans—each holding at least $1 million in plan assets and typically having 100 participants or more. The report studied plan sponsors’ combinations of automatic enrollment, employer contributions, and participant loans in those 401(k) plans. In addition, using a third sample—with detailed investment data compiled in the BrightScope Defined Contribution Plan Database on nearly 30,000 large 401(k) plans—the study examined trends in plan investment options and fees, providing additional insights into the 401(k) system.
“This study underscores how the 401(k) plan’s flexible structure permits employers to configure their own plan designs to encourage employee participation and meet the needs of their workforces,” said Sarah Holden, ICI’s senior director of retirement and investor research and a researcher on the study. “As the 401(k) market evolves, plan sponsors revisit and refine their plan designs and remain committed to promoting retirement saving, offering a wide range of investment choices, and often making contributions to the plans.”
401(k) Plan Sponsors Use a Variety of Employer Contribution Designs
Percentage of 401(k) plans in the BrightScope database, 2014
Note: See Exhibit 1.6 in the report for details on the definitions and sample.
Source: BrightScope Defined Contribution Plan Database
Employers Design 401(k) Plans to Include Features That Employees Value
Mutual Fund Fees, Total Plan Costs Continue Trending Down
Based on the data from the BrightScope database, the study found that mutual fund fees in 401(k) plans trended downward between 2009 and 2014. The study also found that fund expenses are typically lower in larger plans. For instance, the average asset-weighted expense ratio for domestic equity mutual funds was 0.82 percent for 401(k) plans with $1 million to $10 million in plan assets, compared with 0.39 percent for 401(k) plans holding more than $1 billion in plan assets.
“Fees in 401(k) plans continue to trend downward over time,” said Brooks Herman, head of data and research at BrightScope, a unit of Strategic Insight. “Increased transparency in the form of public disclosure have allowed plan participants and plan sponsors to judge the impact of fees on 401(k) savings.”
Key Findings on Investment Choices Offered Through 401(k) Plans:
The Investment Company Institute (ICI) is a leading global association of regulated funds, including mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts (UITs) in the United States, and similar funds offered to investors in jurisdictions worldwide. ICI seeks to encourage adherence to high ethical standards, promote public understanding, and otherwise advance the interests of funds, their shareholders, directors, and advisers. ICI’s members manage total assets of US$18.2 trillion in the United States, serving more than 95 million US shareholders, and US$1.6 trillion in assets in other jurisdictions. ICI carries out its international work through ICI Global, with offices in London, Hong Kong, and Washington, DC.
BrightScope is a Strategic Insight business, providing data and analytics through the SI Data division. BrightScope drives the growth of data-driven decision-making at leading financial services firms. BrightScope builds best-in-class software solutions facilitating more effective sales and retention strategies for top financial institutions. BrightScope works with eight of the top 10 asset managers by US open-end assets, and eight of the top 10 defined contribution plan recordkeepers. BrightScope maintains a database with information on more than 60,000 defined contribution plans, largely gathered from Department of Labor Form 5500 audited filings.
Strategic Insight (SI) provides critical and proprietary data, business intelligence, research and marketing services to the global asset management community. SI delivers full service solutions to the asset management sector worldwide, including investment flow data, advisor sales analysis, in-depth research, analytics, editorial content and events for investment managers, asset owners and custodians, plus Transaction Cost Measurement of over 500 million trades per month. Strategic Insight clients include over 1,000 of the most prominent names in the asset management industry, including 83 of the world’s 100 largest fund managers.
Strategic Insight delivers its products and services through four distinct divisions: SI Data, SI Research, SI Intelligence and SI Interactive. Its portfolio of leading editorial titles includes the well-recognized brands PLANSPONSOR, PLANADVISER, Chief Investment Officer, Global Custodian, and The Trade. The company’s headquarters are in New York with offices in Boston, Denver, San Diego, San Francisco, Stamford, CT; London; Munich; Melbourne; Toronto and Vancouver. Strategic Insight is backed by Genstar Capital.