PLANSPONSOR - November/December 2017 - 32

Investment policy statement (IPS) usage has been flat, with
65.9% of plans overall using an IPS; this means one-third of plan
sponsors are without such a statement. Why is it so important?
It forces a plan sponsor to define its investment goals, the " why "
behind those goals and its intended process to achieve them.
Given the uptick in litigation in the retirement plan space,
Emily Costin, partner, Alston & Bird LLP in Washington, D.C.,
finds these survey results to be counterintuitive.
As to the survey revealing a slowing
of fiduciary best practices, she says, " The
feature I would definitely have written
into the plan, is a provision allowing the
plan sponsor to delegate fiduciary duties.
Often what occurs is the plan documents
say the sponsor is the named fiduciary. "
What this means is that the company is the
fiduciary. " As a company has to act through
people, if that fiduciary duty isn't delegated
to someone and there's a fiduciary claim,
the plaintiff is going to name the company
and the top dog of the company. ERISA
[Employee Retirement Income Security
Act] allows for the delegation of duties but
only if the plan documents say they can be
delegated. To me, this is one of the most
important things to have written in the
plan documents, " she says.
Costin explains that there is a
auto-increase amounts greater than 1% has dropped. "
Dominic DeMatties, a partner at Alston & Bird, also in
Washington, says, " There is no single step a sponsor can take in
terms of plan design that does more to increase the amount of
savings than having automatic features. The participants who
are defaulted frequently do not change those elections and end
up with increased savings. Nothing else comes close to what the
auto-features have accomplished. "
These are not fiduciary decisions,
Another plan
design feature
worth noting is
the use of Roth
contributions,
which jumped
from 52.4% in
2014 to 68.5%
this year.
distinction between plan design and a plan sponsor carrying
out its fiduciary duties. The decisions made about the design
and then the drafting of the plan itself for compliance purposes
is a settlor function belonging to the plan sponsor not the individual
fiduciaries. " For that reason, " she says, " if a plan sponsor
decides to implement a company match or automatic enrollment,
or any plan feature, the sponsor puts the plan design feature into
the language of the plan. Then it is required or 'hardwired' into
the plan. Plan sponsors have wide latitude with what they want to
do with their plan. The fiduciaries' responsibility is to carry out
what the plan documents say. "
Plan Design Elements
The second area of interest when evaluating survey results is
what sponsors are doing in terms of plan design. Although a
number of plan designs are generally accepted as contributing
to participant success and outcomes, some of them seem to have
stalled in their adoption.
For instance, according to the survey, automatic enrollment
has been between 40% and 43% for the past five years, and automatic
escalation-a simple way to increase participant deferral
rates-is in use at 33.6% of plans. While that is an increase, from
29.3% in 2014, Brian O'Keefe, director of research and surveys at
Strategic Insight and the author of the DC survey, says, " The path
has been anything but linear, and the percentage of plans with
32 PLANSPONSOR.com November-December 2017
and, in fact, there are safe harbor ways to
implement automatic enrollment and escalation,
so why are the adoption numbers
not higher? According to the National
Compensation Survey of 2015, " [Because]
a common way for firms to encourage
workers to participate and contribute
to retirement plans is to match some
percentage or dollar amount of worker
contributions, automatic enrollment likely
increases employer costs. This increase
occurs because, all else equal, previously
unenrolled workers begin receiving
matching employer contributions upon
automatic enrollment. " In other words,
plan sponsors may be reluctant to add
features that increase company costs.
This perception may be in line with
DC Survey results indicating that the
percentage of companies reporting that their organization pays
for recordkeeping fees today is 35.8% vs. 41.5% in 2013. At the
same time, 14.2% of companies share plan costs with participants
and 49.9% have participants pay entirely. In addition,
the percentage of plans with immediate eligibility is slowly
eroding-from 37.6% in 2013 to 36% this year, O'Keefe says.
When asked about auto-escalation, DeMatties says the level
of escalation comes down to the individual populations, and
those who run the plan should know their plan's demographics.
He says, " I don't get concerned about pushing the envelope
because I'm confident there will be very clear communications
to participants about how to opt out. "
Another plan design feature worth noting is Roth contributions,
which jumped from 52.4% in 2014 to 68.5% this year.
DeMatties says, " I think a lot of people are convinced that Roth
401(k) accounts can be beneficial for those at the lower income
level who can afford to save-a participant may pay a low tax
rate when investing in a Roth and then pay no tax later when the
money and earnings are distributed. Roths can also be effective at
the higher income levels because participants end up paying their
taxes outside of the plan. Say, if your contribution level is $18,500,
right at the 402(g) limit, you can effectively put away more than if
you'd contributed $18,500 pretax, because the pretax contributions
and earnings would be taxed when the funds leave the plan. But
the middle is where most people are. " -Judy Faust Hartnett
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PLANSPONSOR - November/December 2017

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