Plan sponsors certainly understand the importance of setting and achieving retirement plan goals, how effective they are in achieving them, however, continues to be a concern.
New research from J.P. Morgan Asset Management finds that DC plan sponsors continue to feel a growing sense of responsibility for participants’ financial wellness, yet “many continue to take a hands-off approach to plan design and are falling short in achieving their goals.”
“While it is certainly encouraging to see that more plan sponsors are taking responsibility for the financial wellness of plan participants, we still see a sizeable gap between the importance plan sponsors place on their goals and how successful they believe their plans are in achieving them,” Catherine Peterson, Managing Director of Global Head of Insights Programs at J.P. Morgan Asset Management, said in a statement.
The survey, titled “The Power of Being Proactive,” clearly demonstrates the benefits of plan sponsors taking a “proactive approach through measures such as automatic enrollment, automatic contribution escalation and streamlining investment decisions,” she adds.
Five important themes to emerge from the research are:
No. 1: A disconnect between plan sponsor intentions and effectiveness
- Nearly three out of four plan sponsors now indicate they have a “very” or “somewhat” high commitment to employees’ fiscal health—a 25% increase from 2013.
- There is often a sizable gap, however, between the importance plan sponsors place on their goals and how successful they believe their plans are in achieving them—notably fewer consider their plans “extremely” or “very” successful.
No: 2 A clear link between a proactive philosophy and success
- In this year’s survey, 59% of plan sponsors say they focus on participants making their own choices, while 41% believe in proactively placing participants on a strong saving and investment path.
- Plan sponsors who follow a proactive philosophy find their plans to be more effective in achieving their goals—approximately 70% of proactive-philosophy plan sponsors believe their plans are “extremely” or “very” effective in helping to ensure participants achieve a financially secure retirement and are able to retire at their targeted ages—more than 50% higher than hands-off-philosophy plans.
- Generally speaking, proactive-philosophy plan sponsors are more likely to utilize industry best practices in terms of getting participants into the plan, helping them to contribute more and targeting communication efforts.
No. 3: Adoption of automatic features continues to rise, although misconceptions remain
- This year’s research shows that 55% of plan sponsors now offer automatic enrollment, up 28% from our first survey in 2013.
- Fewer plan sponsors—38%—offer automatic contribution escalation, though this represents an 81% increase from the 21% of plan sponsors offering this type of plan feature in 2013.
- Plan sponsors cited employee pushback and individual financial responsibility as key reasons not to offer automatic features, however, the survey showed that most participants are in fact in favor or at least neutral about these features.
No. 4: TDFs remain popular with plan sponsors, but knowledge still lags
- This year, 62% of plan sponsors indicated their plans offer TDF series—notably higher than in 2013 when only 46% did.
- Three out of four plan sponsors (75%) are highly confident regarding their TDF selection and monitoring process.
- However, more than 30% of plan sponsors still do not have a solid understanding of the specifics used in their TDF designs.
No: 5 Plan sponsors are satisfied with advisors and consultants
- Most plan sponsors—71%—use advisors/consultants, and 67% are satisfied with their relationships. However, fewer than one in four (24%) express extreme satisfaction.
- Plan sponsors who work with advisors/consultants that proactively suggest new ideas and best practices are more likely to be extremely satisfied with the relationship—41% versus 17% of plan sponsors with advisors/consultants who do not offer these types of services.
Key implications for plan sponsors
- Taking a more proactive approach appears to offer a strong win-win for both participants and plan sponsors.
- When automatic enrollment and automatic contribution escalation are used together, these programs can be powerful in driving positive plan results- increasing participation rates and usually overall satisfaction levels.
- There is room for continuing education on the importance of clearly understanding and effectively evaluating the TDF strategies plan sponsors select for their plans, especially when used as a QDIA.
- There is opportunity for advisors/consultants who consistently bring new insights to the table. Taking a more proactive approach can add meaningful value to their client relationships and potentially tap into new ways to expand their businesses.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
