Plan Sponsors Ask... Q3 2024

Q: Over the past year, we’ve seen a growing percentage of our plan assets invested in our target date fund offerings. How does this trend compare with the industry overall?

A: According to a recent survey by investment consultant NEPC, target date funds are increasing as a percentage of total plan assets. NEPC’s 2023 DC Plan Trends and Fee Survey revealed that 97% of plans currently offer target date funds (TDFs) and that, on average, 47% of plan assets are invested in TDFs. By comparison, 28% of plan assets were invested in TDFs in 2010. This increase is leading to a reduction in the number of core investment options, which are decreasing as a percentage of plan assets. The survey notes that 30% of plans currently have fewer than 10 core investment options. NEPC’s survey can be accessed at: https://tinyurl.com/2bdzhs9k (free registration required for download).

Q: With the positive trajectory of state-run IRA programs over the past few years and new tax incentives provided by SECURE 2.0 for starting a 401(k) plan, what is the potential for the retirement plan industry?

A. Recent research from Cerulli Associates forecasts nearly 40% growth in the number of 401(k) plans by 2030, primarily based on the federal and state efforts that you mention. That translates to one million new plans. By comparison, Cerulli has estimated there were 668,419 total 401(k) plans as of the end of 2022. This is great news for the retirement plan industry, as the Boston College Center for Retirement Research statistics estimates that about 33% to 50% of private sector workers are not currently covered by a workplace retirement plan.

Q: We’ve had a lot of turnover with our plan committee over the past year. As a result, we are planning to prioritize fiduciary training in future meetings. Is there a good foundational overview on fiduciary responsibilities that you would recommend?

A: Your decision to prioritize fiduciary training is smart. Sponsors of retirement plans, especially those covered by the Employee Retirement Income Security Act, must ensure their retirement plan committee members are trained to understand and execute their fiduciary duties. Besides your plan advisor, other resources for educational content include your recordkeeper, TPA or other service providers, ERISA attorney (if using one), and nonprofit professional human resources management associations. In addition, the U.S. Department of Labor’s comprehensive publication “Meeting Your Fiduciary Responsibilities” covers everything you need to know about being a retirement plan fiduciary. It can be downloaded at: https://tinyurl.com/mr32sdwf.