A growing number of employers are happier with their plan advisors, as more professionals engage with clients beyond retirement readiness and the 401(k), reports new findings out today from Fidelity Investments.
Fidelity’s latest Plan Sponsor Attitudes Study, which surveyed 1,100 employers who offer retirement plans through a variety of recordkeepers, found that 90% of plan sponsors are currently working with a retirement plan advisor, and 80% reported being satisfied with the plan, up from 74% last year.
Furthermore, 81% of sponsors say they are “highly satisfied” with their advisor, an increase from 63% in 2019 and 76% in 2023.
These employers want to engage their employees past the 401(k) plan, as 81% say advisors should speak with participants about broader financial planning needs. One notable area are health care expenses, as 50% of sponsors believe it is “very important” for advisors to provide guidance on health savings accounts (HSAs), an increase from 25% in 2023.
“Plan sponsors are expecting more from their advisors, and our data shows a clear relationship between the combined value of specialized expertise and plan satisfaction,” said Dalton Gustafson, head of Intermediary Investment Client Group at Fidelity Investments, in an interview with 401(k) Specialist. “With that as insight, advisors are evolving and engaging with both sponsors and participants beyond the retirement plan. Some of those touchpoints include promoting financial wellness benefits, educating about HSAs, and advising on student debt management, ultimately driving top-line advisor satisfaction from plan sponsors and better positioning employees for retirement.”
Plan sponsors have not only worked on changes within their plan design—they’re looking at their investment lineup, too. According to Fidelity, nine out of 10 surveyed sponsors have made changes to their menus within the last 12 months.
As a result, employers look to their advisors for guidance in connecting with fund managers that can grow their investment performance. One out of four sponsors (26%) shared that hearing directly from the target date investment manager and being able to ask them questions was an important factor in selecting a professional to work with. Performance (22%) and advisor/consultant recommendations (19%) were also crucial to plan sponsors.
Plan sponsors were also likelier to value performance over cost when it comes to target-date funds (TDFs). Nearly 60% of sponsors said they prefer a target date investment option that is more expensive but has historically delivered better performance net fees, compared to 41% who prefer less expensive options with lower performance net fees.
With collective investment trusts (CITs) gaining momentum in the marketplace as the most popular target-date vehicle this year, more plan sponsors are incorporating them into their own investment menus. Findings from Fidelity show that 32% of sponsors have added CITs within the past year, and 32% plan to increase the number of CITs available on their menu in 2024.
Top plan design changes
Advisors are increasingly working with sponsors to identify key areas of change within plan designs. One of the leading modifications reported by sponsors was increasing the matching contribution rate (37%), reports Fidelity.
Other notable changes include adding automatic increases to deferral rates, at 28% compared to just 7% in 2023. Thirty-two percent of plan sponsors say they plan to adopt automatic deferral rate increases in 2024—a 10% jump compared to last year. Additionally, as emergency savings accounts (ESAs) gain popularity across employee benefits, 26% of sponsors intend to add the feature to their workplace plan in 2024.
In its report, Fidelity underscores the significance in working with an advisor. Plans without an advisor were likelier to fall short on common retirement planning features, although not by much. For example, 82% of advised plans offered automatic enrollment, compared to 68% of non-advised plans. Thirty-one percent of advised plans want to increase their matching contributions, while only 25% of non-advised plans intend to do so, and 28% of advised plans say they want to introduce automatic enrollment, versus 21% of non-advised plans. Advised plans are also likelier to have a defined income replacement goal (82% vs. 66% for non-advised plans).
Still, despite all the offerings, plan participants continue to struggle with retiring on time due to insufficient savings, reports Fidelity. Only 50% of employees from all plans surveyed are retiring on schedule, and 23% retire later than expected.
Moving outside of automatic features, advisors are crucial in helping participants understand and interpret retirement planning education and communications, notes Gustafson.
“As our study shows, advisor-led plans are more likely to adopt automatic enrollment, enhance matching contributions, and introduce new enrollment strategies,” he says. “Advisors can help bridge this perception gap by improving participant outcomes, educating on plan design changes, and being engaged with plan available and present to sponsors and participants when it comes to retirement planning.”
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
