RogersCasey/Ioma survey shows almost 70 percent of Defined Contribution Plans have participation rates greater than 75 percent; Tax deferral benefits is top reason for employee participation in plans even higher participation is top priority for plan sponsors lifestyle options are increasingly popular.DARIEN, Conn.--(BUSINESS WIRE)--April 26, 1995--Almost 70 percent of defined contribution plans Defined contribution plan A pension plan whose sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: Defined benefit plan surveyed had a participation rate greater than 75 percent in 1994, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the RogersCasey/IOMA 1994 Defined Contribution Survey released today. Furthermore, the survey showed that 31 percent of the plan sponsors surveyed have participation rates greater than 90 percent while only 14 percent have participation rates less than 60 percent. Two-thirds of the plan sponsors said increased employee participation was their number one priority over the next twelve months. "Even among those plans with a 90 percent participation rate, half of them want to see participation increased," said Ruth Hughes-Guden, managing director and head of the Defined Contribution Services Group at RogersCasey. "These plans are looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. 100 percent participation which is quite aggressive." The survey was conduct by RogersCasey, a Darien, Conn.- based investment services and pension consulting firm Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee consulting company business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a and was co-sponsored by the Institute of Management and Administration (IOMA IOMA Institute of Management and Administration IOMA Instituto de Obra Médico Asistencial (de la Provincia de Buenos Aires; Spanish) IOMA International Oxidative Medicine Association IOMA International Online Music Awards ). The survey included responses from 450 plans, representing approximately 1.25 million participants and $300 billion in plan assets. Better Understanding of Tax Benefits by Participants According to the survey, the primary reasons for participation in 401(k) plans are: o tax deferral tax deferral The delay of a tax liability until a future date. For example, an IRA may result in a tax deferral on the amount contributed to the IRA and on any income earned on funds in the IRA until withdrawals are made. benefits - cited by 79 percent of respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. , o provision of a retirement vehicle - cited by 74 percent of respondents, and, o company match - cited by 69 percent of respondents. "It's interesting to note that tax deferral benefits replaced company match as the top reason for participating in corporate plans," said Hughes-Guden. "This suggests that people have a better understanding about the 401(k) plan and that educational efforts are working." According to Hughes-Guden, "This year's survey showed the continuation of a number of trends that surfaced in our 1993 survey, including an increase in the use of bundled services (employing the same vendor for different services, e.g., trustee, record keeper and investment managers), more frequent valuation, a continued sharing of costs between the company and participants and an ongoing search for new service providers." The survey showed an increasing proportion of plans hiring new vendors in 1994: o 34 percent hired a new investment manager o 27 percent hired a new trustee o 25 percent hired a new record keeper "Plan sponsors, in recognition of the larger assets in these plans and the need to comply with Regulation 404(c) -(a), are reassessing their defined contribution plan to make sure they have the best service providers in place," said Hughes-Guden in explanation for this increase in the hiring of new vendors. "The investment side of the equation for this increase in the hiring of new vendors. "The investment side of the equation is becoming more of a focus, which is why you see an increase in joint responsibility for these plans between companies' human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. and treasury departments." Total Benefits Outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. on the Increase Total benefits outsourcing, whereby one vendor administers the company's defined benefit, defined contribution and health and welfare services, surfaced as an emerging interest among plan sponsors as 33 percent of plans surveyed said they would consider implementing a total benefits outsourcing service. "We see a continuing trend towards outsourcing as companies are downsizing (1) Converting mainframe and mini-based systems to client/server LANs. (2) To reduce equipment and associated costs by switching to a less-expensive system. (jargon) downsizing and trying to decrease the administrative burden on their staff," says Hughes-Guden. Greater Interest in Lifestyle Options The RogersCasey/IOMA survey also showed that more plan sponsors expect to offer Lifestyle Options to participants. While 13 percent of plans surveyed currently offer Lifestyle Options, 38 percent of large plans (over $5 billion in assets) want to add these, and 19 percent of small plans (under $50 million) intend to do so. "Lifestyle Options make sense because they are communicated as investment choices according to tolerance for risk and long-term goals Long-term goals Financial goals expected to be accomplished in five years or longer. . They make the asset allocation decision Asset allocation decision The decision regarding how an institution's funds should be distributed among the major classes of assets in which it may invest. easy for participants and offer immediate diversification of investments," noted Hughes-Guden. "We believe that sufficient exposure to equities in defined contribution plans is very important, and for those who are uncomfortable with that kind of allocation decision, Lifestyle Options offer a non-threatening way to invest in equities," she added. Other Priorities In addition to increasing participation rates, plan sponsors highlighted several other priority changes for 1995, including improving participant allocations (34 percent), adding a voice response system (12 percent) and adding investment options (35 percent). The majority of plans surveyed offer five investment options, with balanced funds Balanced Fund A mutual fund that invests its assets into the money market, bonds, preferred stock, and common stock with the intention to provide both growth and income. Also known as an asset allocation fund. (offered by 68 percent of plans surveyed), actively managed U.S. equity (64 percent) and money market (60 percent) being the three most popular. Plan sponsors also continue to focus on improving participant communications. The survey showed the two most effective types of communications to be financial counseling and seminars (and meetings) while the two least utilized were retirement planning Retirement financial planning refers to a collection of systems, methods, and processes which, in their aggregate, support a family unit's (client's) desire to achieve a state of financial independence, such that the need to be gainfully employed is optional. software and videos. -0- -(a) 404(c) provides that if participants (or their beneficiaries) exercise control over their individual account in a DC plan, then no fiduciary is liable for the consequences of such exercise, as long as the fiduciary provides at least three distinct and well diversified investment options, sufficient information about these options and the opportunity to give investment instructions. CONTACT: Compton Consulting Group Jeanette Akers, 617/227-2940 or RogersCasey Karen Dehmel, 203/656-5947 |
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