Fidelity Investments took a close look at plan sponsor concerns and compared those answers with what happened during the Great recession of 2008.
According to the Boston-based company’s Plan Sponsor Attitudes Study, plan sponsors worry most about whether their plan is effectively preparing employees for retirement financially.
In late March, during market volatility and the COVID-19 pandemic, Fidelity also surveyed nearly 1,000 plan sponsors for which Fidelity is the recordkeeper, and their top concern was employee financial well-being.
Not surprisingly, plan sponsors continue to make changes to their investment menus and plan designs to improve participant outcomes.
“While supporting their employees’ retirement readiness has always been a top priority for plan sponsors, the current market crisis has accelerated its importance,” Liz Pathe, head of DCIO Sales with Fidelity Institutional, said in a statement. “Plan sponsors are looking for guidance and reassurance during this difficult time, and we continue to see plan advisors playing an important role in helping companies identify ways to improve their retirement plans and help their employees strengthen their financial well-being.”
Increased focus on investment menu
Fidelity looked back at data after the financial crisis in 2008 to gain perspective on plan sponsors’ areas of focus during what were also uncertain times.
In 2010, the top reason sponsors decided to begin using a plan advisor was because they needed help with plan investments, especially given the market situation.
This year, the top reason was for help with the increasingly complicated process of managing a retirement plan.
Plan investments will likely become an area of focus again. When asked how their plan advisors underscore their value, more than half of sponsors said the performance of plan investments. And overall, a majority of sponsors said investment menu changes were driven by a desire for better performance.
Seventy-four percent of plan sponsors have made changes to their investment menus in the past two years. Forty-four percent of sponsors reported that they review the performance of their plans’ investment options at least quarterly, down from 58% last year.
“In our conversations with plan sponsors and advisors, investment performance is now top-of-mind given the potential for continued market volatility,” Pathe added. “Plan advisors can play a more active role by proactively reviewing plans’ investment menus with sponsors and working to address their concerns.”
The study found that 92% of plan sponsors reported they work with plan advisors, and 70% are very satisfied with their relationships. Sponsors with advisors said they were more satisfied that their plans are achieving company and participant objectives. About seven in 10 sponsors said they agree that they are getting good value from their advisors.
Sponsors considering changes to plan design
Eighty-two percent of plan sponsors have made changes to plan design in the past two years. The company match appeared to be top of mind for sponsors, as adding a matching contribution, increasing the matching contribution amount, and changing the matching formula represented three of four top changes made over the past two years.
Adding a Roth contribution option rounded out the top four changes.
This year’s study revealed that plan sponsors working with advisors have made certain constructive plan design changes at a higher rate than those without advisors, including increasing the auto-enrollment deferral rate (7% higher), adding a Roth contribution option (6% higher), and adding automatic increase (4% higher).
Plan sponsors may be assessing changes to plan design given the current market environment, including the matching contribution.
However, when Fidelity separately surveyed about 900 plan sponsors in mid-April, most said they are not considering a reduction or suspension of their company match.
This is encouraging as employees continue to contribute to their plans. According to Fidelity, 10.1% of participants increased contributions in April 2020 versus 8.9% in April 2019, and only 2.5% stopped contributing versus 1.5% last year.
The full financial picture
Plan sponsors and plan advisors continue to look beyond retirement preparedness at employees’ full financial pictures, and many see the value of implementing programs to support employees’ financial wellness, healthcare, and student debt payments.
- More than half of plan sponsors said they offer financial wellness programs to employees (57%), and the number is significantly higher for those with advisors (59%) than those without (38%). Of plans with programs, 61% reported the programs have had a strong positive impact on employees.
- Most sponsors said they offer a High Deductible Health Care Plan (56%), and of those that do, 86% also offer a Health Savings Account (HSA). However, employees may not fully understand the benefits of HSAs, as sponsors that offer them reported that only 40% of all employees choose to enroll. Eight in 10 plan sponsors offering HSAs said they would be willing to pay to have someone provide HSA education to employees.
- About two-thirds of companies (64%) are aware of student loan repayment programs for their employees. Forty-four percent of those without programs said that they feel employees would be interested in a program that could help them both save for retirement and pay their student loans. And 68% of sponsors with repayment programs saw a positive response from employees.
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.
