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Sustainable Investing

Wonder Women: Why Defined-Contribution Plans Benefit From Female Plan Administrators

Not only is gender diversity improving among defined-contribution plan administrators, but that shift is likely to result in better participant outcomes.

A growing body of research suggests companies that are diverse--with employees and leaders that represent diversity across genders, races, ethnicities, religions, ages, sexual orientations, and physical abilities--are more successful than those that aren't. This effect is often referred to as the "diversity dividend."

While there have been gains in many industries when it comes to gender diversity, there are still gains to be made. For example, a recent Morningstar report found the percentage of mutual fund managers who are women remains unchanged from 2000 to 2019, holding steady at 14%. This imbalance was perhaps best captured in a report published by the Morningstar U.K. team titled "More Funds Run by Daves Than Women," which noted that there were more funds in the United Kingdom run by managers named David or Dave than funds run by women of any name.

In new research, we explore how gender representation has changed from 2000 to 2017 among defined-contribution plan administrators, using publicly available data from Form 5500s, as well as the respective relationship between gender and plan quality. Plan administrators are generally the individuals primarily responsible for operating the defined-contribution plan and by signing the Form 5500 are attesting under the penalty of perjury that all information is complete and accurate. We don't actually know the gender of the plan administrator, so we use a probability matching approach based on the first name.

We find that there has been a significant increase in gender diversity among defined-contribution plan administrators, increasing from approximately 30% in 2000 to just under 50% in 2017. The growth has been the largest in defined-contribution plans with fewer participants. We demonstrate this effect in the chart below.

While diversity itself is certainly a noteworthy goal, it is unclear to what extent the increase in the female representation among defined-contribution plan administrators is going to impact participants. In other words, is there any difference in the "quality" of a defined-contribution plan based on the gender of its plan administrator? Since defining quality is an abstract concept, we focus on various aspects/decisions of the defined-contribution plan administrator to determine whether he or she is doing things that are more likely to improve the retirement outcomes for participants.

We considered three potential plan decisions: whether the plan exhibits good governance characteristics (that is, intends to meet the conditions of 29 CFR 2550.404c-1); offers automatic enrollment; and uses a default investment fund for participants who fail to direct assets into their account. For each of these three metrics, across all plan sizes and two test periods, we found that plans run by female administrators appear to be "better" than those run by males because they were more likely to exhibit better plan-governance attributes, more likely to automatically enroll participants, and more likely to offer target-date funds.

Overall, this research suggests not only is gender diversity improving among defined-contribution plan administrators, but that the shift is likely to result in better participant outcomes.

To learn more about this research, please join us for a webinar on Wednesday, March 10 at 1 p.m. CST.

Julia Varga is a product and investment specialist for the Morningstar Retirement Solutions product group.

Morningstar Investment Management LLC is a Registered Investment Advisor and subsidiary of Morningstar, Inc. The information is the proprietary material of Morningstar Investment Management. Reproduction, transcription, or other use, by any means, in whole or in part, without the prior written consent of Morningstar Investment Management, is prohibited.

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