J.P. Morgan Asset Management has data—lots and lots of data. Its recently released 2021 Defined Contribution Plan Participant Survey is turning heads and getting attention, specifically for what it found out about retirement plan participant behavior during the COVID-19 crisis. It’s good news, a silver lining of sorts to counter a challenging period and bodes well for the industry’s ongoing efforts to increase savings rates and therefore positive participant outcomes.
Meghan Jacobson, CFA, Executive Director and Head of J.P. Morgan U.S. Insights Programs, and Alexandra Nobile, Vice President of Retirement Insights with the firm, have studied, analyzed, and interpreted the data to help educate clients. They sat with 401(k) Specialist for an insightful interview about the survey results and how plan sponsors and participants can benefit moving forward.
Executive Director and Head of J.P. Morgan
U.S. Insights Programs
Vice President of Retirement Insights
According to the 2021 Defined Contribution Plan Participant Survey, plan participants overwhelmingly say they stay the course and remain invested during volatile market periods. Have we turned a corner on investor education and behavior, and are they finally “getting it?”
Meghan Jacobson: We were thrilled to see that nearly four out of five participants told us that they didn’t make any changes during the COVID crisis. To your point, we’ve seen a great deal of progress made throughout the years, and a lot has to do with plan design. So many plan sponsors that we speak with are taking advantage of automatic features to get participants on the right course. We also think education programs—either from the recordkeeper or the advisor—seem to be paying off.
From our perspective, it’s important to note that while many participants say they stay the course, they don’t always behave as they say. While the CARES Act made it easier to take withdrawals, we took a look at actual withdrawal rates and saw what participants tell us actually rings true, and they really weren’t taking action. We know inertia is a powerful force in retirement plans, but this is an example of when it’s in the participant’s favor.
How has product innovation like target-date funds helped participants stay the course?
MJ: We think inertia is a key point here as well. While I do think a target-date fund is terrific for participants who qualify themselves “do-it-for-me” (someone who wants to delegate investment decisions to a professional), when it comes to retirement plans, target-date funds can work for the majority. I always want to be sure that we don’t define them as something that is “set-it-and-forget-it”. What we want is for participants to continue to check-in. We want them to stay the course and not get scared by a market bump, and the diversified nature target-date funds in that regard are helping people stay the course.
How has the pandemic and the subsequent market rebound affected participant confidence in their retirement outcomes?
Alexandra Nobile: As Meghan mentioned, with the pandemic, we’ve seen participants stay the course, and nearly 6 in 10 tell us they’re more confident that their savings will last a lifetime – up 13% since 2016.
In a separate study, we saw a significant pullback in spending and also saw significant savings balances at the height of the pandemic. This idea that there is more flexibility in saving and being more mindful of what you’re spending could have a lasting effect on participants. For myself, just seeing the day-to-day effect of not buying salads every day in New York City and making my lunch at home; that’s something I’m going to be more mindful of when I’m back in the office. It’s that idea that I can be saving more by making these minor changes.
What major trends surfaced in the latest survey, and what was most surprising or unexpected about the results?
AN: The biggest surprise was participants desire for their employers to help more with emergency savings. The idea that an employer can offer an emergency savings account in the plan rated highly. And all participants are generally very supportive of this idea, especially younger participants. Retirement might be further off for younger participants, so we can get them engaged in filling up that three-to-six-month bucket of emergency savings and then contributing to the retirement account.
It helps with things like withdrawals or loans. When people have a healthy emergency balance, they’re less likely to steal from their future selves by taking withdrawals from retirement plans. Overall, the positive reaction to emergency savings accounts and their need, from a participant perspective, within employer plan offerings was a key takeaway.
We’ve seen participants stay the course, and nearly 6 in 10 tell us they’re more confident that their savings will last a lifetime – up 13% since 2016.
Has the role of the financial professional changed because of the pandemic and, if so, how?
MJ: Years like 2020 and 2021, show just how much employers can help their employees by working with financial professionals. I would divide them into two groups. The first are those financial professionals that work with individual participants. Our survey results showed us that more than four out of five participants said they would love the help of a financial coach to make decisions. The pandemic has brought that into focus. It becomes even more critical for participants who may not have enough capital to access a traditional financial advisor.
The second type of financial professional are those that advise the plan sponsor on the retirement plan. If you think about the past two years, when so many plan sponsors had to focus on so many different things, they could have used all the help that they could get. Whether it’s hardship withdrawals or even setting up remote work-from-home arrangements for their employees, the plan sponsors have a huge job. This is another way where, when it comes to things like plan design and employee benefits, financial advisors can lend a hand.
How can advisors help participants filter the noise and combat information overload that too often results in a “paralysis of analysis” and a failure to act?
MJ: The big thing financial professionals can do for plan participants and sponsors is really to think about those automatic features, things like automatic enrollment, automatic contribution escalation, and target date funds. These features help participants take advantage of inertia and then put them on a path to a secure retirement. Financial professionals can help plan sponsors understand the benefits so that it takes the guesswork out of the participants’ hands.
It also allows participants to focus on things that are a lot more personal to them, like budgeting. My budget might look a little bit different than your budget. We’re also starting to hear more about what their retirement income number looks like and how one thinks about creating a personal plan. We believe that taking the big decisions—how much to save, what to invest in, how much to increase the contribution every year—off the table through auto features will get the participants focused on the things they can control, like budgeting and retirement income planning.
Since the SECURE Act made it easier to include lifetime income options in 401(k)s, are participants demanding income options in the retirement portfolio?
AN: This was one statistic that we were excited to see! Fully 85% of the participants in our survey are looking to their employer to provide retirement income options within the plan. That’s a high number. It makes sense when we think about it. Employers are helping participants save for retirement. Participants trust their employers generally when it comes to setting them up for success in retirement, so it makes sense that they would also want help to develop a plan for drawing down funds in retirement.
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.
