Employee benefit plan sponsors are going in the right direction. Employees are saving more, fiduciaries are trying to step up and everyone is working together to make the golden years really golden.
“That’s a good thing to see, and hopefully — barring another economic meltdown — we’ll all get there,” says Bertha Minnihan, an assurance partner and national practice leader of Employee Benefit Plan Services at Moss Adams LLP.
“Plan sponsors have realized administering benefit plans in today’s complex environment isn’t easy and there are consequences,” she says. “The employees are demanding more information, a solid plan and strong retirement vehicles, and I think employers are stepping up.”
Moss Adams recently conducted its 2013 Employee Benefit Plan Benchmarking Survey, covering Washington, Oregon, California, Arizona, New Mexico and Kansas, which features an in-depth look at 401(k) plans and other benefit plan trends. Areas covered included plan participation and performance, employee matching, investment options, loans, plan fiduciary, fee disclosure requirements and plan audits.
Smart Business spoke with Minnihan about the survey’s results.
What were the key findings from the survey?
There were several positive findings based on this survey, when compared to prior results. Participation in plans continues to grow with the economic recovery. About 36 percent of respondents said that their participation is between 80 to 100 percent.
Auto-enrollment is increasing; about 40 percent were offering auto-enrollment. Automatically enrolling employees at a certain percentage, usually 3 or 4 percent, which they can either opt out of or increase was utilized only by a few employers a couple of years ago. It’s a good way to show employees they can save for retirement.
The employer match is on the rise with 80 percent of plans offering it. During the recession, the matching contribution was one of the first things to go. The survey found 23 percent of those who eliminated the match reinstated it in 2013. Matching is a strong employee attraction tool in certain parts of the country like Silicon Valley.
In addition, plan fiduciaries are being more proactive, and fiduciary and governance awareness is increasing. This correlates to how often governance committees are dissecting investment fees, for example.
How else did the survey depict employees?
Employee education is evolving, and employees are becoming savvier. This is something industry experts have been telling employees for years. Use your education. Understand your investments. Maximize the match the company is offering, and participate — because you can’t build a nest egg if you don’t have a nest.
Why do you think companies have gotten better at fiduciary responsibilities?
Plan sponsors realize the retirement world has become complex. It’s becoming paperless with more investment options. In addition, there are more regulatory requirements from the Department of Labor (DOL) and IRS. Form 5500 is asking for more information, and the DOL has even started auditing the auditors. More oversight always funnels down to the plan sponsors as a result of the regulators and auditors who knock on their door with questions.
New fee disclosure requirements began in 2012, but the survey found only 54 percent of plan sponsors are fully prepared to comply with these disclosures. Why the lag?
The DOL wanted transparency so plan participants could see what they pay. Historically these fees were netted against the rate of return, the earnings the employee accrues, and they were never grossed up. The fee disclosures are becoming a part of business, it’s just rolling out slower than anticipated.
Many employers have competing priorities. There is a lot of reporting that goes on for the other kinds of plans a sponsor maintains, such as health and welfare plans. Others are still trying to get their arms around the requirements.
So far the fee disclosures haven’t created much change in investment behavior. Sponsors might start to drag their feet because after talking to their peers, they ask, ‘What does this really affect?’ But the DOL and IRS are asking about it when they audit plans. They want to know how sponsors are educating employees, and if they are providing the required fee disclosures in a timely matter. Plan sponsors will get there eventually.
Remember, your employee benefit plan is an important part of how you compensate your employees for their service — and it’s one you need to monitor carefully if you want to stay in compliance, avoid penalties and provide real value to your employees.
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