Morningstar - Q2 2021 - 45

EXHIBIT 1

Gender and Plan Quality
While gender diversity itself is a noteworthy
goal, we wanted to determine what effect, if any,
it would have on defined-contribution plan
participants. In other words, is there any difference
in the quality of a plan based on the gender
of its administrator?

While defining quality is a somewhat abstract
concept with respect to operating a definedcontribution plan (compared with managing
a mutual fund, for example, where it is
easier to estimate alpha metrics), we can look at
plans and decisions made by administrators
to determine whether they are doing things
that are more likely to improve the retirement
outcomes for participants. In our view, to
be considered high quality, a plan must exhibit
good governance characteristics; offer automatic
enrollment; and use a default investment
fund for participants who fail to direct assets
into their account:
Good Governance
It is difficult to determine how diligently
an employer (the plan sponsor) is overseeing its
defined-contribution plan. One indication is
how seriously a plan sponsor is taking its fiduciary
duty. One clue is whether the sponsor seeks
Erisa Section 404(c) compliance. Erisa 404(c)
relieves plan sponsors and other fiduciaries
from liability for losses resulting from participants'
direction of their investments. To comply,
plan sponsors must meet a variety of requirements
that relate to investments, plan design,
disclosures, and so on.
Complying is voluntary but is a signal that the
sponsor is providing high-quality plan oversight
and fiduciary governance. Therefore, in our
study, we assume that plans that note compliance
with Erisa 404(c) have better plan governance
procedures than those without.
Automatic Enrollment
Automatically enrolling participants in a definedcontribution plan can significantly improve
participation. There has been a notable increase in
the percentage of plans automatically enrolling
participants, especially since the passage of the
Pension Protection Act of 2006.

Diversity Trend Across all plan sizes, the probability that plans are being run
by men has fallen.
Male Probability by Plan Size and Plan Year, 2000-2017
Plan Participants
Plan Participants
100-249
500-999
100-249
500-999
250-499
1,000-2,499
250-499
1,000-2,499

2,500-4,999
2,500-4,999
5,000-9,999
5,000-9,999

10,000-24,999
10,000-24,999
>25,000
>25,000

Average Male Probability
Average Male Probability
80%
80%
70
70
60
60

2000
2003
2000
Plan Filing Year 2003
Plan
Year
Source:Filing
Morningstar.

2006
2006

2009
2009

2012
2012

2015
2015

2017
2017

50
50
40
40

EXHIBIT 2

Plan Improvement The percentage of plans that offer these high-quality services
has increased.
Average Percentage of Plans Offering Feature by Plan Filing Year
404(c) Compliance
Auto Enrollment
Default Investment Fund
404(c) Compliance
Auto Enrollment
Default Investment Fund

% of Plans Offering
% of Plans Offering
100
95.29 100
95.29
89.23
89.23 75
75

31.36
31.36

2009
2009
Plan Filing Year
Plan Filing Year

2011
2011

2013
2013

2015
2015

2017
2017

50
50
25
25
0
0

Source: Morningstar.

Default Investment Fund
A large body of research indicates that
most people are ineffective investors; therefore,
offering a default investment such as
a target-date fund can significantly improve
participants' portfolios.

The percentage of defined-contribution
plans that offer these three services has increased
over our test period ( EXHIBIT 2 ). Automatic
enrollment has experienced the largest
relative growth, increasing from 11.5% of plans
in 2009 to 31.4% of plans in 2017 (for an

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