Callan Associates Inc.

600 Montgomery Street

Suite 800 Media contact:
San Francisco, CA 94111 Karen Witham
witham@callan.com
415-274-3062

www.callan.com

FOR IMMEDIATE RELEASE

CALLAN SURVEY: SPOTLIGHT ON FEES IS RESHAPING DEFINED CONTRIBUTION PLANS

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10 Annual DC Trends Survey Reflects Feedback from 165 U.S. Plan Sponsors

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SAN FRANCISCO (January 9, 2017) Callans 10 -annual Defined Contribution Trends Survey
reveals that fees are playing a heightened role in driving plan sponsor decision-making. Reviewing plan
fees was cited as a key area of fiduciary focus, both now and for the foreseeable future. Also related to
this focus on fees are trends including an increase in recordkeeper search activity, movement to
institutional fund structures, de-emphasizing revenue sharing, and adoption of fee policy statements.

Callan, a leading independently owned investment consulting firm, has published the Defined
Contribution Trends Survey each year since 2007. This year 165 U.S. DC plan sponsors responded, with
more than 80% having over $100 million in assets.

Plan sponsors described their review of plan fees as continuous, said survey co-author and DC
consultant Jamie McAllister. This includes both investment fees and recordkeeping fees. Recordkeeping
searches often result in fee reductions. As a quarter of our survey respondents said that they were very or
somewhat likely to conduct a recordkeeper search in 2017, this implies that fee pressure will continue.

When Callan first asked the question, in the 2012 survey, plan sponsors reported that the majority of
participants paid administrative fees solely through revenue sharing (36%) or partially through revenue
sharing (30%). In 2016, just over a third (38%) said that revenue sharing was used to pay such fees.

In 2012, plan sponsors had fewer fee payment options, said Lori Lucas, CFA, survey co-author and
Callans DC practice leader. Today, there are far more mutual funds and daily valued collective
investment trusts (CITs) without revenue sharing, and even when there is revenue sharing, plan sponsors
can rebate it back to plan participants in ways that werent previously available.

Plan sponsors movement away from mutual funds to CITs is also primarily driven by fees. Nearly two-
thirds of DC plans offered CITs in 2016, up from 48% in 2012. Meanwhile, mutual funds have decreased
in prevalence from 92% to 84% over that same period. Fees are also driving the increased use of indexed
funds. In 2016, far more plan sponsors reported increasing the proportion of passive funds in their plan
(12%) than increasing the proportion of active funds (2%). Importantly, over 47% of plan sponsors have a
written fee payment policy in place, either as part of their investment policy statement (21%) or as a
separate document (26%). This is the highest rate ever recorded in Callans survey.

Other survey findings include:

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Auto features: The use of automatic contribution escalation increased markedly over the past
year (63% in 2016 versus 46% in 2015). Caps on automatic contribution escalation have also
markedly increased, from 19% in 2015 to 27% in 2016. (pages 17 and 18)
Fund changes: Nearly half (47%) of plan sponsors reported making a fund change due to
performance-related reasons. This is the highest in the surveys history. Large cap equity was the
most commonly replaced fund. (page 34)
Target date funds: Plan sponsors that took action with their target date fund in 2016 most
commonly cited evaluating target date suitability (67%) as the most prevalent course of action.
(page 25)
Money market funds: Largely in response to money market reforms going into effect, 64% of
respondents have changed to a different money market fund or eliminated their money market
fund altogether. (page 32)
Fiduciary Rule: Respondents believe the Department of Labors 2016 Definition of a Fiduciary
Rule will primarily impact the plans printed materials, website, and other educational materials
(43%) and communication regarding plan rollovers (43%). (page 12)

Along with the data in our quarterly Callan DC Index and Target Date Index, this survey paints a
detailed picture of the challenges and opportunities that are top of mind for DC plan sponsors this year,
said Lucas.

About Callan Associates:

Callan was founded as an employee-owned investment consulting firm in 1973. Ever since, we have empowered
institutional clients with creative, customized investment solutions that are uniquely backed by proprietary research,
exclusive data, ongoing education and decision support. Today, Callan advises on $2 trillion in total fund sponsor
assets, which makes it among the largest independently owned investment consulting firms in the U.S. Callan uses a
client-focused consulting model to serve public and private pension plan sponsors, endowments, foundations,
operating funds, smaller investment consulting firms, investment managers, and financial intermediaries. For more
information, please visit www.callan.com.
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Media contact: Karen Witham, witham@callan.com, 415-274-3062

Members of the press may contact Karen directly for a copy of the full survey.