The latest research from T. Rowe Price explores key trends impacting plan sponsor decisionmaking, from target date solutions and retirement income to investment trends and financial wellness programs.
The third annual Defined Contribution Consultant Research study surveyed 32 defined contribution (DC) consultants and advisory firms with a combined $6.7 trillion in assets under advisement, finding that plan sponsor clients are evolving from an exploratory to a decision-oriented position when it comes to incorporating retirement income solutions. Whereas 59% of clients in 2021’s research had “no stated opinion” on in-plan retirement income solutions, only 24% said the same in 2023, found T. Rowe Price.
The switch in attitude comes as a higher number of plan sponsor clients are also currently offering or planning to add a retirement income solution this year: from 8% in 2021 to 19% in 2023, the research added.
When asked if they offer a retirement income solution, four out of five study respondents said they do not, and 43% said they evaluate the suitability of retirement income solutions on a per-plan basis instead. Over the next 12 months, one-third of respondents said they will offer formal ratings for in-plan retirement income solutions.
Among the retirement income solutions available, T. Rowe Price research found that identifying a simple systematic withdrawal capability was the most appealing, closely followed by managed accounts with income planning features and target date investments with an embedded, non-insured managed payout feature.
Other retirement planning features that respondents considered effective included targeted communications regarding the benefits of staying in a plan; making financial planners/advisors available to participants; and offering flexibility in how plan assets can be drawn down.
ESG in DC plan investments
Regarding the incorporation of environmental, social, and governance (ESG) factors in DC plan investment options, most respondents strongly agreed that evolving regulatory guidance and legislative developments posed challenges to offering the sustainable investments.
However, 71% of study respondents identify ESG integration as the best path forward to incorporating ESG factors in DC plan investments. T. Rowe Price does note that respondents categorized “integration” as “when material economic, social, and governance factors are considered alongside traditional factors, but returns are prioritized over social objectives.”
T. Rowe Price also found an increased focus in diversity, equity, and inclusion (DEI) practices, as respondents report that plan sponsors use DEI data to explore how their demographic figures can inform targeted participant communications.
Potential growth of student debt repayment and emergency savings features
As more studies explore the connection between financial wellness offerings and employment strategies, respondents to the T. Rowe Price study say more plan sponsors are willing to offer such features to improve overall worker satisfaction and retention.
Respondents say that estimating retirement income needs, improving overall financial knowledge, and determining how much to save are the most valued offerings among plan sponsors, and includes emergency savings, general debt management, and student loan debt management as other key areas of focus among employers.
While current use of student debt and emergency savings programs is limited, T. Rowe Price forecasts an increase in usage as respondents expect to see its growth within the next three to five years.
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