It’s tough for US defined contribution (DC) plans to keep up with regulatory changes if the people responsible for the plans don’t realize they’re responsible. Fiduciary awareness isn’t what it should be. In fact, it’s less than it was several years ago.
It’s no simple matter to keep a DC plan running smoothly. There are lots of fiduciary duties that carry legal responsibilities for plan sponsors. All plan sponsors.
And there’s the hitch: more than one-third of the respondents to our most recent DC plan sponsor survey said they were not plan fiduciaries.
That’s not a happy result, because everyone in the survey actually was a fiduciary, based on their answers to the screening questions. What’s even more worrisome is that the percentage of those who didn’t realize they were fiduciaries has risen from 30% in 2011 to 37% in 2014, the date of our most recent survey (Display).
And yet, four out of five plan sponsors (82%) in our survey said fiduciary matters were important or very important, and 70% believed that all individuals who served in a fiduciary capacity at their plan were aware of their status. Our results suggest they were overly optimistic.
Our latest survey of over 1,000 plan sponsors (a balanced representation from across the full universe of DC plan sizes) also shows some interesting dividing lines among plan sponsors.
For instance, there was a notable gap in fiduciary awareness among respondents depending on their role within the company. Human resources/benefits professionals were more likely to say they were not fiduciaries (42%) than either senior executives (35%) or treasury/finance representatives (32%). Also, respondents who said they were part of a plan’s administrative committee were twice as likely as other respondents to be unaware of their fiduciary status.
Plan size made a difference, too. Nearly half the respondents from the smallest plans (those with less than $1 million in assets) didn’t know they were fiduciaries. In contrast, respondents from the largest plans, with their dedicated staff and legal advisors, tended to have a much better understanding of their fiduciary obligations. Using a financial advisor or consultant also made a difference among sponsors from plans with less than $500 million in assets. Those who didn’t use an advisor were more likely to say they were not fiduciaries than those who did (30% vs. 18%).
It’s also worth pointing out that more plan sponsors took fiduciary concerns seriously when the plan offered target-date funds: 87% of such plan sponsors said fiduciary concerns were important or very important, compared to 77% of those planning to offer target-date funds and 79% of those not planning to offer them. This may indicate that plan sponsors who are more concerned with fiduciary matters recognize the prudence of having a qualified default investment alternative such as target-date funds in their plans.
What can help? Active training programs at companies make a difference. Respondents who didn’t consider themselves fiduciaries were more likely to say their organization didn’t provide training—44%, compared to 30% of those whose companies did provide training. We think it would also help if fiduciary training were made mandatory for plan sponsors—or, at the very least, made more easily accessible. And certainly plan sponsors with advisors and consultants should reach out to those experts for further assistance: they can help improve awareness and understanding of fiduciary responsibilities.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
“Target date” in a fund’s name refers to the approximate year when a plan participant expects to retire and begin withdrawing from his or her account. Target-date funds gradually adjust their asset allocation, lowering risk as a participant nears retirement. Investments in target-date funds are not guaranteed against loss of principal at any time, and account values can be more or less than the original amount invested—including at the time of the fund’s target date. Also, investing in target-date funds does not guarantee sufficient income in retirement.