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From Spencer's Benefits Reports: Smaller 401(k) plan sponsors have little understanding of ERISA Sec. 404(c) protection, are not too knowledgeable about investment policy statements, and do not change the investment options in their 401(k) plans very often. These were among the findings of a survey conducted by Cowden Associates, Inc., of 105 employers in the greater Pittsburgh area and surrounding states.
Employers surveyed had 1-99 employees (35.3% of respondents), 100-499 employees (32.4%), 500-999 (15.2%), and 1,000 or more employees (17.2%). The percentage of respondents by approximate plan assets were as follows:
| $100,000-$999,999 | 9.7% |
| $1,000,000-$2,999,999 | 29.1% |
| $3,000,000-$4,999,999 | 15.5% |
| $5,000,000-$9,999,999 | 18.4% |
| $10,000,000-$49,999,999 | 13.6% |
| $50,000,000 or more | 13.6% |
Of the 105 employers, 34 had no idea what ERISA Sec. 404(c) was, and 32 employers knew it existed but little else. The remaining 39 employers said that they had a good understanding of ERISA Sec. 404(c) or considered themselves to be very knowledgeable about it.
Of the 75 plan sponsors that had an investment policy statement, 25 did not know what was included in the statement. The remaining 50 plan sponsors had varying degrees of understanding of the specifics contained in their investment policy statement: 41 plan sponsors said that the investment policy statement had selection criteria for investments and managers; 33 said that it identified plan fiduciaries and their respective roles; 18 said that the statement contained security and control guidelines (including cost controls); and 12 said that it contained guidelines for use of professional advisers.
The survey found that 32 plan sponsors rarely changed the investment options offered in their 401(k) plans, while 35 plan sponsors changed investment options every two to five years. Investment options were changed annually by 32 plan sponsors, and four plan sponsors changed their investment options semiannually.
Automatic enrollment was used by 16.3% of the plan sponsors at the following contribution rates: 1% of pay = one plan sponsor; 2% = two plan sponsors; 3% = 12 plan sponsors; and more than 3% = two plan sponsors. Only seven of the 105 plan sponsors used an automatic contribution increased feature: six plan sponsors increase contributions 1% per year, and one plan sponsor increased contributions 2% per year.
Most plan sponsors (92.3%) offered more than ten investment choices to their participants, as follows: 11-15 choices = 41.3% of plan sponsors; 16-20 choices = 26.0%; 21-25 choices = 13.5%; and more than 25 choices = 11.5%. Smaller employers were more likely than larger employers to offer both fewer choices and more choices: seven of the 71 employers with fewer than 500 employees offered ten or fewer investment choices and ten of the 71 employers with fewer than 500 employees offered more than 25 investment choices. Only one employer with more than 500 employees offered ten or fewer investment choices and only two employers with more than 500 employees offered more than 25 investment choices.
A brokerage window allowing participants to invest in individual stocks was offered by only 7.6% of the plan sponsors. Surprisingly, 9.5% of the plan sponsors did not know if their plan offered a brokerage window. The remaining 82.9% of plans did not offer a brokerage window.
For a complete copy of the Cowden Associates survey, entitled 2007 Tri-State 401(k) Plan Sponsor Survey Report, contact James Bartoszewicz at jimb@cowdenassociates.com.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
Visit our News Library to read more news stories.
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