401k plan sponsors feel a growing sense of responsibility for participants’ financial wellness, “and are more intent than ever on enhancing their plans to improve retirement outcomes for their participants.”
It’s the good news to come from a new data released by J.P. Morgan Asset Management, signaling an uptick in awareness of the importance of financial wellness, as least with plan sponsors.
“Plan sponsors and their organizations are transitioning from a traditional view of their DC plans—for example, as a way to attract and retain employees—to a sharper focus on achieving the ultimate retirement outcome: helping as many employees as possible reach a financially secure retirement,” Catherine Peterson, Managing Director, Global Head of Insights Programs, said in a statement.
Key themes and findings:
Focusing on retirement outcomes
The research indicates that plan sponsors’ sharper focus on participants’ retirement outcomes begins with the growing sense of responsibility they feel for their employees’ financial well-being and carries over to:
- the increasing importance they assign to outcome-oriented plan goals and success criteria, such as helping ensure participants have sufficient income in retirement
- the factors driving their plan design decisions
- their greater adherence to a philosophy focused on proactively placing participants on a solid saving and investing path
Linking goals and philosophy to action
Plan sponsors are also linking their sense of responsibility, goals and proactive placement philosophy to actions. The survey examines what plan sponsors are doing to strengthen their plans:
- implementing automatic enrollment: 85 percent of large plans (with assets of $250 million and over); 64 percent of all plans
- implementing automatic contribution escalation: 77 percent of large plans; 1/2 of all plans
- adding target date funds (TDFs) to investment lineups: 80 percent of large plans; 62 percent of all plans
- choosing TDFs as their qualified default investment alternative (QDIA): 93 percent of large plans with QDIAs; 78 percent of all plans with QDIAs
- conducting/planning to conduct a plan re-enrollment (albeit at a slower pace): 20 percent of large plans; 13 percent of all plans
No time for complacency
The above-mentioned progress notwithstanding, savings rates are still too low and some plan sponsors are not confident that their participants have an appropriate asset allocation.
While the percentages of plans implementing and/or considering automatic plan features and strategies are encouraging, too many plans have not yet taken advantage of the potential for these tools to help:
- improve participant savings behavior
- simplify investment decisions
- allow inertia (the human tendency toward inaction) to work for, not against, participants
The report identifies factors that may be impeding DC plan evolution. More important, it points to opportunities to address misperceptions, shrink information gaps and enhance understanding of the features and strategies available to help plan sponsors continue strengthening their plans.
Fiduciary misperceptions
Under ERISA, fiduciaries have the obligation to prudently select and monitor a plan’s investments. While all plan decision-makers surveyed define their responsibilities as ones that would categorize them as fiduciaries, 43 percent of these plan sponsors are not aware that they are plan fiduciaries—a disappointing finding, unchanged from our 2015 results.
“Our survey suggests that some DC plan sponsors, to varying degrees, lack clarity regarding their fiduciary status and the nature of their responsibilities,” added Meghan Jacobson, Executive Director of J.P. Morgan Asset Management.
Implications
Seizing these opportunities to help ensure the continued evolution of DC plans is a necessity and will require a collaborative effort:
- Participants should be actively engaged in planning for their retirement.
- Plan sponsors can deepen their understanding of participant behavior, gain clarity on their fiduciary roles and responsibilities and set outcome-oriented goals for their plans.
- Plan providers and financial advisors/consultants can help plan sponsors sharpen their view at the individual participant level, stay apprised of regulatory developments and maintain awareness of plan innovations.
- Policymakers can seek to incorporate a broader range of viewpoints—from participants, plan sponsors, providers and financial advisors/consultants—when formulating regulations and providing guidance.
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.
