The 8th annual survey of retirement plan participants from American Century Investments unearthed some interesting nuggets of insight, particularly regarding trends in what participants are looking for from their employers and their retirement plans.
While 401k Specialist recently took a closer look at another finding from the study—increased participant interest in “extreme” 401k plans—the study also found rising interest in participants who want to leave funds in plans after retiring, an increasing appetite for ESG investing options, and more holistic financial advice provided by their employers.
Here’s a closer look at each, based on insight from the American Century Investments survey and comments from Diane Gallagher, American Century Investments VP, Value Add.
Leaving funds in the 401k
Some eight out of 10 respondents said they would be more likely to leave money in their 401k plan if their employer offered an investment option specifically to help retirees draw income during retirement. Participants report rollover IRAs as the most common distribution option today.
“Clearly, there is a strong preference for leaving assets in the plan at retirement and taking withdrawals from the plan to fund retirement,” Gallagher said. “Investment solutions offering a retirement income stream provide plan participants with peace of mind after leaving an employer. This interest certainly has implications for plan sponsors and providers to offer solutions to make that a reality for participants.”
Gallagher hinted that providers are putting a much bigger emphasis on integrating retirement income solutions within plans.
“I think the industry is still innovating in that regard. Plans have traditionally been about accumulating assets, and now we need to talk about withdrawing them,” Gallagher said. “That’s why we asked the question this year and we did get a strong response from participants saying, ‘I’d rather leave my assets in the plan, and live on those assets by keeping them where I worked.’”
More ESG investing options
One in eight survey participants say they work for a company that offers environmental, social and governance (ESG) investments, a significant increase from last year’s findings.
Also, men are more likely to be extremely or very interested in having an ESG option as part of their retirement savings plan. Further, participants with an income of at least $100,000 are more likely to be extremely interested in ESG investments.
“The role of plan fiduciaries is very clear: To act in the best interests of plan participants when selecting and evaluating investments. As ESG is increasingly applied in investments, it will be important for plans to understand ESG and implications for plan investments,” Gallagher said.
The ability of 401k plans to offer ESG investment options is currently the subject of a controversial Department of Labor proposal seeking to limit its scope. A recently ended 30-day comment period on the proposal drew more than 1,500 comments, mostly panning the restrictions and many asking for the proposal to be withdrawn.
Holistic financial advice from employers
This year’s study found that three in four participants would find it attractive if their employer were to offer them holistic financial advice, a significant increase from last year.
Additionally, participants making at least $100,000 per year were more likely to find this offer attractive. Similar shares of participants currently use personal research, financial advisors, and family for advice on investing, with Boomers most likely to use a professional advisor.
“Given the premium participants place on the role of employers, it’s not surprising that participants would look to employers to offer a source of financial advice,” Gallagher said. “Participants seem a little overwhelmed at all the advice options available to them, so getting that advice through an employer-provided source is valuable.”
Participants are also split on their feelings towards paying for professional advice. Four in 10 believe paying for an advisor is worth the cost. Another four in 10 would rather pay less for software or an online program. The rest, two in 10, will never pay for professional advice.
Women are more inclined to prefer an online advice service over an advisor, based on cost, and men are more likely to believe paying for an advisor is worth the cost.
Despite these splits, three in four participants still believe a professional advisor will play a role in helping them prepare for retirement going forward. Two-thirds believe the same about software, a significant increase from last year.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
