Table of Contents - Moss Adams€¦ · PLAN AUDITS ... This report presents the findings of the...

EMPLOYEE BENEFIT PLAN BENCHMARKING REPORT

2013

http://www.mossadams.com

OVERVIEW ................................................................................................................ 2

PLAN PARTICIPATION AND PERFORMANCE ............................................................. 5

EMPLOYER MATCHING ............................................................................................ 10

CONTRIBUTIONS .................................................................................................... 12

INVESTMENT OPTIONS .......................................................................................... 13

LOANS ..................................................................................................................... 17

PLAN FIDUCIARY .................................................................................................... 18

FEE DISCLOSURE REQUIREMENTS ......................................................................... 22

PLAN AUDITS .......................................................................................................... 24

Table of Contents

OverviewThis report presents the findings of the 2013 Moss Adams Employee Benefit Plan Survey, providing perspective on current 401(k) plan offerings, recent trends, and expected changes. The survey was conducted in November 2013 and garnered responses from approximately 200 plan sponsors and benefit plan managers in 11 states. Our response rate of about 20 percent far exceeded the typical 9 percent response rate for such surveys.

2013 | EMPLOYEE BENEFIT PLAN BENCHMARKING REPORT | 2

Where are you located?

What’s your total number of employees?

AK, AZ, CO, ID, MT, UT, VA, WY | 1%

OR | 18%

CA | 31%

1–20 | 2.8%21–50 | 9.8%

51–200 | 32.2%201–1,000 | 40.6%

More than 1,000 | 14.7%

WA | 40%


OVERVIEW

Are you backed by venture capital?

Yes | 6.5%

No | 93.5%

Plan Participation and PerformanceThe survey yielded a high percentage of employees participating in plans. This general trend toward increasing participation could point to employees’ improving outlook on the economy and an aging demographic as baby boomers near retirement.

Auto-enrollment continues to remain popular as more plan sponsors offer this as a default benefit for newly hired employees. The objective is to increase participation and encourage employees to save money. Larger companies were more likely to offer auto-enrollment than smaller companies. Auto-enrollment may be more efficient for human resources departments to manage, but it requires employees to be proactive in opting out. Companies who don’t offer auto-enrollment may be concerned with the increased cost of the employer match (if applicable) and employee apprehension about automatic deductions from their paychecks.


Approximately what percentage of your employees participate in your 401(k) plan?

0%–19% | 9.8%

20%–39% | 14.0%

40%–59% | 14.7%

60%–79% | 25.2%

80%–100% | 36.4%

Does your plan offer auto-enrollment?

Yes | 39.8%

No | 60.2%


Do you have a centralized payroll?

Yes | 95.3%

No | 4.7%

PLAN PARTICIPATION AND PERFORMANCE

Do you use an external or internal payroll provider?

Internal | 35.9%

External | 64.1%

Not surprisingly, the total asset value of plans increased commensurate with the general increase in participation. Plan investment performance also improved for larger plans, which may have more opportunities to leverage lower fees, investment advisor benchmarking, and better access to stronger investment options.

Asset values were on the rise through 2013 as the investment market dramatically improved. Average plan asset size remains between $5 million and $50 million. In addition, it appears the increase in the valuations of plan assets is mostly due to a combination of an increase in contributions and earnings on the assets.


What is the total asset value of your plan?

Less than $5 million | 32.2%

$5 million–$10 million | 20.3%

Greater than $1 billion| 1.4%

$500 million–$1 billion | 1.4%






What were the average annual earnings of your plan in 2012?

0%–3% | 4.9%

4%–6% | 35.7%

More than 15% | 7.0%

7%–10% | 35.7%

11%–15% | 16.8%



Do you sponsor other plans?

Yes | 32.2%No | 67.8%

Which types of plans?

80%

70%

60%

50%

40%

30%

20%

10%

Defined Benefit

Defined Contribution

Health and

Welfare

ESOP

15.2%

67.4%

30.4%

13.8%



If you have a defined contribution plan, does your plan offer an annuity or an annuity-style investment option for retirees?

Yes | 9.3%

No | 90.7%

Employer Matching The majority of plan sponsors offer employer matching contributions. The economy took its toll on employer matching—some companies reported eliminating or decreasing their match up to 2011 and then slowly began to reinstate it. Still, companies that aren’t planning to reinstate their match should be aware that employees may cut back on their contributions, possibly resulting in difficulties in passing required nondiscrimination testing.


Did your plan have an employer matching contribution in 2012 (or does it currently)?

Yes | 78.9%

No | 21.1%

Did you eliminate or decrease the matching contribution during the past few years?

Yes | 20.3%

No | 62.4%

No employer match | 17.3%


If you eliminated the matching contribution, have you already or do you intend to reinstate the match during 2013?

EMPLOYER MATCHING

Yes | 23.3%

No | 17.3%

No employer match | 59.4%

What is the approximate average dollar amount of the employer matching contribution per participant based on your formula?

Less than 4% of employee earnings | 41.4%

Not applicable; no employer match | 21.8%

Between 4% and 6% of employee earnings | 28.6%

More than 6% of employee earnings | 8.3%

Contributions


Do you have after-tax annuity contributions?

Do you have catch-up contributions?

Yes | 9.0%

Yes | 87.2%

No | 91.0%

No | 12.8%

Investment OptionsCompanies continue to look for ways to help employees invest. Increasingly popular in recent years, target-date (or life-cycle) funds provide an option for employees who prefer a simple approach to investing. Another trend, according to responses from a majority of plan sponsors, is plan fiduciaries’ conducting a review of the fund makeup for each target-date fund. This may be mainly due to the increase in auto-enrollment, with target-date funds as a frequent default option.


Do you have an independent investment advisor?

Does your plan have target-date investment options?

Yes | 78.7%

Yes | 71.2%

No | 21.3%

No | 28.8%

Trends and best practices are moving toward increased fiduciary governance. This entails many things, including a review of plan investments and the fund makeup. This enables the fiduciaries to make sound decisions in administering their plans and provide effective fund lineups for participants.

Does your plan have a stable value fund investment option?


INVESTMENT OPTIONS

Have your plan fiduciaries reviewed the fund makeup that underlies the target-date funds?

Yes | 80.9%No investment advisor | 2.2%

No | 16.9%

Yes | 76.8%No | 23.2%

Since the days of Enron, company stock has become a rarity in plans and continues to be on the decline. Most companies use other vehicles to provide company stock ownership to their employees and steer away from retirement plans.


Does your plan include company stock?

Does your plan offer a brokerage window option to participants?

INVESTMENT OPTIONS

Yes | 8.8%

Yes | 33.8%

No | 91.2%

No | 66.2%


Do you provide investment education to participants?

In what format do you provide education?

In-person | 77.5%Virtual | 59.7%

INVESTMENT OPTIONS

Yes | 79.2%No | 20.8%

LoansAccording to survey respondents, between 3 and 10 percent of plan participants took out loans for financial reasons. This makes sense; these numbers were much higher during the economic downturn, and the lower percentage reflects an improving economy. Relatedly, there continues to be a decrease in companies offering multiple loans. While participants who take out multiple loans may feel the short-term decision is for the best, the money probably isn’t being used for investing for retirement as intended. In addition, multiple loans increase the administrative burden, another motivation for companies to move away from allowing them.


What percent of participants in your plan currently have loans?

Does your plan allow more than one loan at a time?

Less than 3% | 58.6%Greater than 10% | 21.1%

3%–5% | 9.0%

6%–10% | 11.3%

Yes | 35.3%No | 64.7%

Plan FiduciariesThe majority of companies reported that their plan’s investment advisor or broker assumed some fiduciary responsibility in their plans. With increased regulation and scrutiny in this area, we believe companies are more likely to seek the added comfort of having an experienced third party play a fiduciary role, turning to their plan’s investment advisor or broker.

Fiduciaries are people or entities that operate or participate in the administration of a plan, and, along with other plan committee members, they assume liability for decisions made by the plan. To fulfill their responsibilities, plan fiduciaries should stay informed and monitor the investment options being offered to participants.

Fiduciaries need to understand revenue sharing and plan expenses to allow an equitable allocation across plan participants. For example, many mutual funds make payments (sub-transfer agency fees and administration service fees) to third parties that help the mutual fund track ownership. Usually the plan’s recordkeeper receives these payments. If a participant is invested in a mutual fund that makes larger revenue-sharing payments than other funds in the plan, that participant could bear a larger burden than participants that invest in mutual funds that make smaller payments. A plan fiduciary needs to select an equitable method for allocating costs and communicate it to participants.


Do you use an external third-party recordkeeper?

Yes | 76.6%No | 23.4%


PLAN FIDUCIARIES

Do you have a plan custodian?

Does your plan’s investment advisor or broker have fiduciary responsibility in your plan?

Yes | 93.8%

Yes | 58.6%

No | 6.3%

No | 41.4%

These results were consistent with most surveys and national averages for retirement plan administration in that all areas surveyed showed a trend toward automation of plan functions through the service provider’s Web site. As noted earlier, it’s important to remember that the plan sponsor remains responsible for all plan administration, whether done internally via hard-copy forms or via the Internet.


PLAN FIDUCIARIES

Does your plan committee thoroughly understand all the expenses charged by the custodian, third-party administrator, fund managers, brokers, and the like?

Yes | 87.5%

No | 12.5%

Are all your plan administrative functions conducted via the service provider’s Web site?

Yes | 79.4%

No | 20.6%


PLAN FIDUCIARIES

Which plan functions aren’t performed on your plan service provider’s Web site?

80%

70%

60%

50%

40%

30%

20%

10%

Enrollment Change in

Transfers among investment options

Loans Distributions

69.6%

60.9%

34.8%

52.2%

69.6%

Contribution

Fee Disclosure RequirementsThe Department of Labor (DOL) extended the time frame to comply with the fiduciary disclosure requirements of ERISA Section 408(b)(2) from the original effective date of April 1, 2012, to July 1, 2012. This regulation requires the fiduciary, usually the plan sponsor of a covered plan, to obtain certain disclosures from covered service providers so that the arrangement or contract can satisfy the statutory exemption from the prohibited transaction rules defining a “reasonable” service arrangement.

For the most part, respondents felt that they’re aware and somewhat or fully prepared for the new regulations. Smaller companies tended to be less aware and prepared than larger companies.

As a result of the new disclosures, many respondents have reviewed their plan’s fee levels. While the majority of respondents feel their plan’s fees are within expectations, it’s surprising that there’s still a significant percentage of companies who have yet to complete the analysis.


There are new disclosure rules under ERISA Section 408(b)(2) intended to help plan sponsors obtain a better understanding of all costs associated with administering their plans and determine that costs are reasonable for the services provided. Is your company aware of—and do you feel prepared to comply with—these new disclosures?

Aware and fully prepared | 54.0%

Not aware | 7.9%

Aware and somewhat prepared | 32.5%

Aware and not prepared | 5.6%


As a result of any efforts to comply with the new 408(b)(2) requirements, you discovered your plan’s fee levels were:

FEE DISCLOSURE REQUIREMENTS

Within expectations | 72.2%

Higher than expected | 7.1%

Analysis incomplete | 20.6%

Plan AuditsBoth the IRS and DOL are active in auditing plans. We expect to see this trend continue to increase.


Have you had an inquiry by a regulatory body, such as the IRS or DOL, related to your plan in the last three years?

Yes | 12.0%No | 88.0%

ABOUT MOSS ADAMS

Moss Adams is one of the largest accounting and consulting firms in the nation. Together with its affiliates, the firm provides insight and expertise integral to its clients’ success, serving public, private, and not-for-profit enterprises across the nation and in a wide range of industries.

Moss Adams LLP is a national leader in assurance, tax, consulting, risk management, transaction, and wealth services.

Moss Adams Wealth Advisors LLC provides investment management, personal financial planning, and insurance strategies to help clients build and preserve their wealth.

Moss Adams Capital LLC offers strategic advisory and investment banking services, helping clients create greater value in their business.

Discover how we make a difference.

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