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Tax/legal compliance reviews increase, among other retirement plan trends
Despite the still-tepid economy, signs of recovery are surfacing according to the 2011 Retirement Plan Survey by advisory firms Grant Thornton LLP, Drinker Biddle & Reath LLP and Plan Sponsor Advisors LLC.
The survey of U.S. plan sponsors was conducted from November 2010 through January 2011.
After significant cutbacks by U.S. employers in matching contributions to 401(k) and 403(b) defined contribution retirement plans since the 2008-09 recession, 30 percent of employers that eliminated or reduced matching contributions and had not yet reinstated them were planning to do so during 2011. Forty-two percent did not have plans to reinstate their match.
When asked this question one year earlier, over half (53 percent) of the employers had not decided whether to return to previous contribution levels, and33 percent had no plans to do so. This indicates a significant shift in plan sponsors’ outlook on matching contributions over the previous year, according to the 2011 report.
Moreover, despite contribution cutbacks by plan sponsors and participants, 83 percent of plan sponsors reported that very few or none of their employees had expressed concerns about their retirement readiness—a figure that analysts found disturbing.
“Considering the issues facing participants, including reduced employer contributions, decreased plan balances, economic uncertainty and regulatory/administrative updates such as Roth conversions, participants may not be aware that they need to be concerned,” said Jennifer Flodin, chief operation officer of Planned Sponsor Advisors LLC.
A record number of Americans have lost confidence in their ability to afford retirement, according to the 2011 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI); see the SHRM Online article "Employee Retirement Confidence Drops to Record Low."
The EBRI survey asked plan participants how confident they felt about their retirement savings, whereas the Retirement Plan Survey discussed in this article asked plan sponsors about their employees' concerns (that is, their awareness of their employees' concerns). The difference is telling.
More Consider Emerging Markets
When it comes to asset classes, plan sponsors showed growing interest in emerging market (EM) funds, with 77 percent of plans reporting inclusion or consideration of EM funds in 2011. This marks a 30 percent increase over 2010, when EM funds were included or under consideration by 46 percent of plan sponsors. In 2010 EM funds outperformed U.S. and international developed country equity funds handily, although they underperformed the broader U.S. and international funds significantly in the first quarter of 2011.
Real estate investment options were second to EM with 53 percent of plan sponsors including or considering them in 2011, followed by global bonds at 48 percent.
“The common trait of many of these asset classes is the lack of correlation they share with the equity markets. Asset classes like commodities, real estate, emerging markets and global bonds can be valuable when incorporated into a diverse portfolio, creating a sum greater than the parts,” said Erica O’Malley, Grant Thornton’s national employee benefit plan practice leader.
Among other survey findings:
• 59 percent of plan sponsors said they had conducted one or more tax/legal compliance reviews on their plan in the prior three years, an increase from 46 percent in the 2010 survey.• 57 percent of plan sponsors had frozen their defined benefit plans to new entrants. Of those who froze plans, 58 percent had frozen the accrued benefits to existing participants, while 42 percent continued to accumulate accrued benefits for the current population.• After working through the challenges of audit requirements for 403(b) plans that took effect in 2010, over 80 percent of 403(b) sponsors said they believe that they have established adequate internal controls over ongoing operations.
• 59 percent of plan sponsors said they had conducted one or more tax/legal compliance reviews on their plan in the prior three years, an increase from 46 percent in the 2010 survey.
• 57 percent of plan sponsors had frozen their defined benefit plans to new entrants. Of those who froze plans, 58 percent had frozen the accrued benefits to existing participants, while 42 percent continued to accumulate accrued benefits for the current population.
• After working through the challenges of audit requirements for 403(b) plans that took effect in 2010, over 80 percent of 403(b) sponsors said they believe that they have established adequate internal controls over ongoing operations.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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