Defined contribution plan sponsors were hit with a number of initiatives this year including fulfilling the Department of Labor’s fee requirements and weighing the pros and cons of retirement income products.
Lori Lucas, DC Practice Leader at consulting shop Callan Associates, recently outlined eight things that DC plan sponsors should consider for 2013 as part of their due diligence process.
First, Lucas recommends that plans benchmark their plan fees and services. According to Lucas, the DOL’s required fee disclosures resulted in “an avalanche of information for plan sponsors,” placing the onus on fiduciaries to benchmark the fee and service data they now possess.
“In this evaluation process, plan sponsors may wish to consider not only the rea¬sonableness of plan fees, but the manner in which they are paid,” said Lucas.
“For example, is revenue sharing a well-considered approach to pay for plan administration? Would a flat, per-participant fee be more equitable? Some plan sponsors have even gone so far as to create a fee payment policy, either as part of their investment policy statement or as a separate document.”
According to Callan’s 2012 DC Trends Survey, while most plans have an investment policy statement, nearly half failed to review it in the past 12 months. “With some fee lawsuits focusing on plan sponsor adherence to the IPS, it is critical that the document be reviewed, made consistent with best practices, and be well understood by the Investment Committee,” said Lucas.
Also, Lucas said plan sponsors should focus on whether their capital preservation fund remains appropriate for the plan; streamlining their investment fund lineup, identifying additional diversification opportunities, and re-evaluating their qualified default investment alternative as part of the plan’s regular due diligence process.
Further on the product adoption front, Lucas, citing a recent Callan study, which revealed that, depending on plan size, the use of non-40 Act vehicles over institutional share classes of mutual funds reduced weighted plan fees by 20% to 35%, said plan sponsors should consider whether these institutional structures make sense for the plan.
As well, she advised plans to re-evaluate their current target date fund family because there could be better target date fund alternatives in the form of custom target date funds depending on the size of the plan’s assets.