A higher number of plan sponsors are taking accountability for their employees’ financial wellness, finds a just-released study today by J.P. Morgan.
The 2023 Retirement Insights survey of 788 plan sponsors reports that 85% of employers currently feel a strong sense of responsibility for their workers, up from 59% in 2013. Nearly nine out of 10 surveyed employers report feeling a “very high” or “somewhat high” level of responsibility, up from 74% in 2019 and 59% a decade ago.
As a result, more employers are either offering or considering implementing a financial wellness program into their benefits. Forty-three percent of plan sponsors say they already offer a program dedicated to financial wellbeing, while 28% are considering adding one. The most frequently cited goals for offering these programs included helping employees’ financial stability, retirement planning, and financial education.
J.P. Morgan’s findings also showed that sponsors who offer a financial wellness program are more likely to provide income protection benefits, such as life insurance (70%), and disability insurance and mental health benefits (60%). One-quarter of employers surveyed said they offer student debt assistance, and 40% offer emergency savings benefits, one-on-one financial coaching and/or debt management assistance. Another half make health savings accounts (HSAs) available and just under half provide paid parental or caregiving leave.
According to J.P. Morgan, sponsors who offer a financial wellness program were likelier to see their retirement benefits as effective in “meeting key goals,” and 95% of these employers believe they are helping their employees guarantee a financially secure retirement.
Responsibility for retirement outcomes
Along with financial wellness, more employers report feeling a sense of responsibility in safeguarding retirement income for participants.
Eight out of 10 surveyed sponsors feel a “very high” or “somewhat high” level of responsibility to help participants generate income in retirement, found J.P. Morgan. Additionally, nine out of 10 “strongly agree” or “somewhat agree” that it is important to offer investments that help participants generate income in retirement. Because of this, six out of 10 now believe defined contribution (DC) plans should be vehicles for retirement income generation.
Of plan sponsors without a current retirement income option, 45% say that they are “extremely likely” or “very likely” to consider offering one in the upcoming year, found J.P. Morgan. For the 22% who said they aren’t likely to consider adding a solution in the upcoming year, their top reasons were: 39% want retired participants to make their own choices; 27% are not aware/unfamiliar with these types of options; 25% are concerned about fiduciary risk/liability; 21% believe their current investment menus are sufficient to help retirees; and 15% do not want retired participants to stay in the plan.
DC plan design
As trends in proactive plan design continue, more sponsors are taking a liking to this type of benefit strategy. J.P. Morgan’s research found 61% of respondents now apply a more proactive plan design philosophy—up from 41% in 2019 and 24% in 2013.
Unsurprisingly, just over half of respondents (52%) say they offer automatic enrollment to new hires, with 15% who automatically enroll new hires and periodically automatically enroll employees not participating in the plan. Twenty-two percent automatically enroll new hires and have conducted a one-time sweep for employees not participating in the plan, and 14% automatically enroll only new hires.
According to the findings, starting enrollment contribution default percentages range from less than 2% to more than 7%, with the majority—63%—falling between 3% and 5%.
Automatic escalation usage also continues to increase, with 42.6% of surveyed sponsors reporting this feature, just over double 2013’s 21%.
Of those who do not use automatic features, the reasons as to why are: 23% feel one contribution rate is not right for everyone; 14% feel it may lead some people to save less than they should; 16% feel employees are responsible for saving on their own; 13% feel they would get too much employee pushback; and 12% do not want to incur the costs.
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