Management of TDFs in Flux, DC Survey Confirms

By Mike Bushnell • March 03, 2015 • 0 Comments
When Callan Associates surveyed plan sponsors in early 2014, more than a third of the respondents said they would make changes to their target date funds during the coming year. The firm’s just-released 2015 survey shows that many of those sponsors were true to their word.

According to the survey, roughly 10% of all plan sponsors changed their TDF manager last year, while the number of plans offering their record keeper’s proprietary TDF plummeted to 28.7%, down from 47.5% of all plans just a year earlier. The number of DC plans with custom TDFs nearly doubled from 2013 to 2014, going from 11.5% to 22.3% in just a year’s time.

A significant percentage of plan sponsors — 17.5% — also said they changed how they pay fees. This is a notable spike from 2013, when just 7.7% of plans shifted fee payments. Beyond that, 46.7% of sponsors said they were somewhat or very likely to change some funds to lower-fee share classes, and 44.3% of sponsors said they were planning to renegotiate record keeper fees in 2015.

The total number of plans offering auto enrollment is now up to 61.7%, continuing a four-year growth trend. However, default totals remain low; the most common contribution amount is 3% of salary, with an average of 4.3% across those surveyed. A third of plans both auto-enroll and automatically escalate contribution amounts.

Roth contributions are also on the rise, with 62% of plans now offering them, marking an increase of more than 25% from last year, when 49% of all plans offered an after-tax contribution option. Nearly 76% of all 401(k) plans offer a Roth option, driving much of that growth.
Passive funds were also popular in 2014, with 27% of plan sponsors increasing their prevalence in their plans. Callan expects this trend to continue in 2015.