Email is still the best way to reach participants, target-date funds are popular but confusing, and participants are interested in retirement income resources.
These are the key insights explored in State Street Global Advisors’ survey of over 1,000 defined contribution plan participants across the U.S., providing a look into what participants want, coupled with recordkeeper insights into participants’ investment behavior.
The insights are intended to help advisors and plan sponsors target outreach programs catering to particular needs and help inform improvements to plan design.
With this in mind, here are some highlights about the three key takeaways from the survey, and what they could mean for plan sponsors, courtesy of State Street Global Advisors. For the full picture, click here.
1. Participants favor email for plan communication
Sixty percent of respondents rated email as their top preference for receiving communications regarding their employer financial benefits.
This isn’t surprising—personal and corporate email continue to be the No. 1 “inbox” that individuals check throughout their day. It’s immediate and easily accessible for the many workers sitting in front of a computer.
The lowest-ranking choice was a postcard—somewhat surprising given that postcards typically offer short, easily readable messages. But postcards and other print-based retirement benefits communications can add to clutter, or worse, get lost, which will become a problem if they contain important calls to action, deadline reminders, or contact information.
• Why this is useful for plan sponsors
Printing and mailing communications can cost a plan sponsor thousands of dollars. Though print communications may be required in certain circumstances, if a plan sponsor has a choice, email is substantially more economical.
Most recordkeepers can deploy emails for their plan sponsor clients, and even have the ability to track open and click-through rates. Such data can provide invaluable insight into what’s working and what’s not—and can help inform the next campaign. Email also offers a more seamless user experience, especially if there is a call to action, like opting out or making an active choice.
Benefits portals or account logins can easily be linked right within the email so a participant can read the message, make a decision, and take action all in one sitting.
2. TDF usage is high, but participants still don’t understand them
It’s well-known that TDFs are an industry standard—as of 2020, they serve as the default investment option in 87% of ERISA DC plans and account for 31% of total DC assets.
Of survey respondents who said their employer offers a TDF in their DC plan, 64% said they invest in one. State Street attributes this to the prevalence of auto-enrollment which, when coupled with inertia, has been effective in raising participation rates.
But if plan participants have trouble making investment decisions (or don’t want to make a decision at all), there’s a strong likelihood that they also don’t care to learn about those investments. Of the TDF investors responding to the survey, 44% said they “weren’t sure” when asked to choose the correct definition of a TDF.
What’s more, 34% said they invest in multiple TDFs, which suggests that misuse of TDFs remains an issue among some employee populations and defeats their purpose as a single-fund, diversified solution.
• What plan sponsors can do
Participants need education, but it has to be purposeful and relevant. Sponsors should lean on their providers—TDF managers, advisors and recordkeepers can assist with outreach solutions and educational content.
Participants are most likely to pay attention to such education when it can be practically applied, so consider making it available during a period of change in the plan (e.g., changing TDF providers) or during open enrollment, when benefits are top of mind.
3. There’s a desire for retirement income resources
The retirement industry has put a tremendous emphasis on accumulation—the saving side of retirement. Over the past decade, more work has been done to help guide participants around decumulation—the spending side of retirement.
Many retirees simply don’t know how to safely spend down the savings they’ve so carefully built during their working years. Some are afraid to touch that money at all. According to the National Bureau of Economic Research, only 18% of households take a withdrawal from their personal retirement accounts in a typical year between the ages of 60 and 69.
So, it wasn’t surprising to find that State Street survey respondents ranked a drawdown tool as the top retirement resource they would use if offered by their employer, and the second most helpful resource to managing their finances while in retirement (the first was a source of guaranteed income).
• What this means for plan sponsors
There is certainly an appetite among participants for resources around retirement decumulation. And policymakers have opened the door a bit further for sponsors with the SECURE Act, which effectively made it easier to incorporate annuities into DC plans.
But the way forward isn’t simple; while many providers offer guaranteed income solutions today, the market has been slow to adopt them. In the meantime, participants continue to look to their employer for decumulation resources.
Sponsors can help support participants with education, online tools, and one-on-one financial consultation. Many recordkeepers offer these services already. It’s important also to stay connected to retirees who remain in the DC plan, a population that has neared or already crossed the decumulation threshold and, arguably, could benefit most from such support.
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.
