More legal counsel crashing retirement plan meetings, Callan survey shows

The lawyers are coming! The lawyers are coming!

To companies' retirement plan meetings, that is.

According to an annual survey by defined-contribution plan consulting firm Callan, there has been a sharp rise in the presence of legal counsel at DC committee meetings, with internal lawyers attending meetings at 49% of the companies in 2022, up from 11% in 2017, and external counsel attending meetings at 36% in 2022, up from 21% in 2017. The report also revealed that the top areas of fiduciary focus were plan governance and process, investment structure evaluation and plan investment management fees.

As a result of the rapidly changing landscape facing DC plan sponsors, Callan’s 16th annual DC Survey covered the SECURE 2.0 Act and diversity, along with the key tenets of DC plan management, governance and financial wellness.

Of the 99 respondents to this year’s survey, 81% offered a 401(k) plan, 27% a 457 plan, 16% a 401(a) plan, and 9% a 403(b) plan, Callan said. Nearly three-quarters of respondents had more than $1 billion in plan assets.

Aside from the influx of lawyers attending retirement plan meetings, other notable trends the survey uncovered related to plan governance, including the fact that the average tenure of plan committee members has increased since 2017, with 36% in 2022 serving more than five years, compared to 28% in 2017.

Although the pandemic changed the balance between virtual and in-person meetings, Callan’s report showed the total number of meetings of either type decreased between 2017 and 2022 on the whole. Instances of committees that have only in-person meetings have risen slightly since return-to-office plans have been more widely adopted, according to the report.

A majority of sponsors indicated an interest in expanding diversity, equity, and inclusion efforts in their plans, the report showed. However, only 1 in 10 respondents formally tracks DEI metrics in their retirement plan and only a small portion of respondents said they were currently planning changes to their investment fund lineup or plan design to support DEI initiatives.

On the topic of service providers and fees, hiring plan consultants remained the norm, with more than 9 in 10 sponsors engaging an investment consultant in 2022. Companies were more evenly split when it came to bundling arrangements: 48% of respondents employed the same record keeper and trustee, while the remainder had an unbundled arrangement, in which the record keeper and trustee are independent.

As for fees, three-quarters of plan sponsors calculated their all-in administration DC plan fees within the past year, while another 14% did so in the past two years. Nearly half of sponsors cut fees following their most recent fee review, and 4 in 10 respondents said they're likely to move to lower-cost investment vehicles in 2023.

When it comes to plan design, Roth deferrals (94%) and automatic enrollment (76%) were the most common enhanced savings features offered in 2022. In fact, three-quarters of DC plans offered automatic enrollment, with the vast majority using it for new hires.

In terms of investments, the status quo generally held, with only 16% of sponsors changing the number of funds in 2022 and an all-time high of 97% of plans using a target-date fund as their default for non-participant directed monies.

When it comes to recent legislation, the study showed that of the nearly 100 provisions included in the recently passed SECURE 2.0 Act, the two initiatives of most interest to respondents were increasing the catch-up amount for older individuals and increasing the starting age for required minimum distributions to 75.