Fiduciary awareness found to be lacking

Thirty-seven percent of plan sponsors are unaware they are fiduciaries to their workplace-sponsored retirement plans, according to research by AllianceBernstein L.P., but 82% of those surveyed said fiduciary matters are important or very important to them.

The survey found that employers that include target-date funds in their retirement plan line-ups are more likely to be aware of their fiduciary role. Eighty-seven percent of those employers said that fiduciary concerns were important or very important to them, compared to 77% who said they plan to offer TDFs and 79% for those who don’t plan to offer them.

The research showed that nearly half of plan sponsors don’t take advantage of the safe-harbor protections that come with offering a qualified default investment alternative.

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“Too many plans either don’t use QDIAs — or any default at all. This means they’re not taking advantage of QDIA safe-harbor protections that provide legal protections to plan sponsors,” AllianceBernstein said.

Small plans seem to be the biggest culprits when it comes to not offering QDIAs. Thirty-seven percent of small plans don’t offer a QDIA, compared to 13% of large plans.

Many plan sponsors are confused by what constitutes a QDIA. One in five survey respondents didn’t know if their plan was qualified and two-thirds of those with stable money or money funds as a default believed those were their QDIA, even though those types of funds are only valid QDIAs for the first 120 days after a participant enrolls.

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Target-date funds continue to be a popular QDIA but most plan sponsors haven’t upgraded theirs beyond traditional prepackaged, proprietary mutual funds, AllianceBernstein found.

“This is true despite the availability of other TDF options that might better serve participants of various plan sizes,” the research found.

The majority of plan sponsors surveyed, with at least $10 million in assets, find guaranteed-income TDFs appealing and 81% reported they are considering adding one in the next three years.

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When asked about whether they would consider expanding their investment offerings to include global bonds or nontraditional investments, 26% of respondents reported that their defined contribution plans don’t include global bond offerings and 58% said they don’t offer any nontraditional or alternative investments to diversify traditional stock and bond exposures, AllianceBernstein found.

“Many plans overlook real estate investment trusts or commodities, despite their being adopted by mutual funds and exchange-traded funds,” the report said.

Plans that use automatic enrollment have higher participation rates among employees and those plans also offer features that help participants through retirement, not just to retirement.

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The survey also found that plan sponsors, especially those with less than $50 million in assets, need additional education to help them figure out the complex workings of their DC plans. Sixty-three percent of plan sponsors said that reviewing fiduciary responsibilities is an important service financial advisers and consultants can provide, but 36% of plan sponsors say they don’t provide training to ensure that all plan fiduciaries understand their responsibilities.

AllianceBernstein surveyed more than 1,000 respondents nationwide, representing micro plans to institutional plans with more than $250 million in assets.

Paula Aven Gladych is a freelance writer based in Denver.