There is no shortage of interesting and relevant findings from Fidelity Investments’ 14th annual Plan Sponsor Attitudes study, released today, which surveys employers that offer retirement plans using a wide variety of recordkeepers.
The study characterizes 2023 as a year of opportunity for the retirement plan industry, with rising plan complexities—ranging from investment menu changes to evolving plan designs—creating avenues for greater advisor impact.
The proprietary study uncovers opportunities with plan sponsors across the nation. It is based on the responses of 1,351 plan sponsors who use a wide variety of recordkeepers, not just Fidelity. The study included plans with at least 25 participants and $3 million in assets, from start-ups to plans with more than $250 million in assets.
Here’s a look at some of the key findings from this year’s study.
1 in 5 plan sponsors actively looking to switch advisors
Although 3 in 4 retirement plan sponsors (76%) report being “extremely satisfied” with their advisor (a level maintained from 2022), slightly more than 1 in 5 sponsors (22%) report they are actively looking to switch advisors.
That’s actually a significant decrease from a couple of years ago, when 1 in 3 said they were looking to change advisors. Back in 2020, just 16% said they were looking to change advisors.
Of the plan sponsors in this year’s study actively looking for a new plan advisor, 35% noted they were merely searching due to external factors and/or benchmarking. For those actively searching, the motivations behind their interest include:
• 38%: The new advisor offered a strategy with more extensive services.
• 36%: The need for an advisor who is more effective in dealing with servicing issues.
• 34%: The new advisor offered a strategy with better employee communication and education.
Those who were searching due to an external/benchmarking lens reported:
• 43%: Merger or acquisition of the company the advisor works for.
• 38%: The current advisor retired/left the business.
• 31%: Merely wanting to review other services being offered.
The study notes that the percentage of sponsors actively searching for a new plan advisor is creating opportunities for advisors to demonstrate their knowledge of sponsors’ needs, such as employee financial outcomes and overall plan education. As the retirement landscape becomes increasingly complex, drivers of plan advisor value continue to be employee focused.
Therefore, if advisors work with sponsors to help improve employee outcomes as well as provide administrative support and objectivity when making plan recommendations, they can better demonstrate their value and alleviate burdens.
“While we see the relationships between plan sponsors and plan advisors evolving, employee communication and education remains at the forefront, with sponsors looking to advisors to offer a more holistic experience,” said Liz Pathe, head of Defined Contribution Investment Only (DCIO) Sales at Fidelity Institutional. “With plan designs, investment lineups, and the benefits landscape all evolving, advisors have an opportunity to showcase their impact and service-centered mindset.”
Interest in CITs rising fast
Investment menu changes continue to be on the rise. The study found that, within the past two years, the most notable enhancements include increased number of investment options (30%); increased number of collective investment trusts (CITs) (29%); and offering CITs for the first time (28%).
In fact, the percentage of sponsors beginning to offer CITs had a 10% annual growth rate from 2018 to 2023. When asked about future planned changes, the rise of CITs remains prominent. Sponsors are considering offering CITs for the first time (29%); increasing the number of CITs (28%); as well as increasing the number of index funds offered (28%).
“We’re seeing an increase in small plans preferring advisors to have autonomy when managing investments and overall design,” Pathe said. “In an evolving investment landscape, it’s not surprising to see sponsors lean on advisor expertise to strengthen overall knowledge and make modifications to product lineups.”
A recent study from Morningstar projects that CITs are on pace to overtake mutual funds as the most popular target-date vehicle in the next two years.
Plan sponsors making adjustments in remainder of year
The study also examined changes in plan designs and found that 95% of sponsors are expecting to make adjustments in the remainder of the year.
The most notable include:
• 26%: Increasing the matching contribution
• 26%: Increasing the auto-enrollment deferral rate.
• 26%: Beginning to offer an income replacement fund.
These remain relatively consistent with those made over the past two years, although all are lower: increased matching contribution (38%); increased auto-enrollment deferral rate (30%); and began offering a matching contribution (28%).
Sponsors value improved participant outcomes most
Fidelity’s new research revealed plan sponsors value improved participant outcomes (44%) over any other service offered by their plan advisor. Other notable drivers of value were time spent on plan and administrative support (43%) and providing objectivity when making plan choices (41%).
Ninety-four percent of plan sponsors work with an advisor and/or consultant, with a primary focus on employee education and plan improvement. The study shows plan advisors offer a broad range of services, including education around industry, legislative and fiduciary issues; help with developing and monitoring the investment lineup; and employee education on retirement plans and investment options.
More from the study
Seventy-four percent of sponsors report being very satisfied that plans are meeting company objectives, with the primary goal of providing adequate retirement savings to successfully replace working income (30%).
On the other hand, the most notable concerns include whether the plan is helping attract and retain top talent (27%), financially preparing employees for retirement effectively (26%), and reducing retirement plan costs for employees (16%). Almost one-quarter (23%) of plan sponsors are measuring the success of plans based on industry benchmarks for employee participation/savings rate goals, while others measure based on employee happiness (21%) and contribution/saving levels (15%).
Seventy-two percent of plan sponsors believe employees are saving enough for retirement, up from 70% in 2022, with 71% believing the auto-enrollment deferral rate/company match are sufficient retirement savings rate for employees (up from 46% in 2018).
However, there are competing financial priorities that are affecting employee savings. When asked what these were, 47% of respondents say current living expenses are too high, 38% reported high heath care costs, and 36% reported lack of discipline in saving for future needs.
Sponsors noted more than half of employees (56%) retire early, some by choice and others by necessity, with 30% due to reasons within their control and 26% due to reasons beyond their control. To combat these competing financial priorities, and to attract and retain talent, 61% of sponsors made changes to employee benefits and 74% actively promoted their retirement plans.
Sponsors are, however, facing challenges when it comes to employee turnover. On average, plan sponsors reported hiring 37% of employees in the past two years, with 58% of tenure at or under the five-year mark. In fact, 71% of sponsors noted such high turnover has created 401(k) plan education challenges within the past year.
Click here for more from Fidelity’s 14th annual Plan Sponsor Attitudes Survey.
SEE ALSO:
• Offering NQDC Plans to Retain Top Talent
• $500 Boost Projected for 2024 401(k) Contribution Limit
• Gen Z 401(k) Balances Spike in Past Year, Fidelity Data Shows
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.
