Lack of Retirement Readiness Sparks Plan Sponsor Concern

More than half 'NFP plan sponsors' offer guaranteed income option

403(b), retirement, incomeWhat to do about retirement shortfalls in non-profit space?

A recent survey of plan sponsors in the not-for-profit (NFP) sector provides a host of suggestions for improving retirement readiness overall.

The report from TIAA finds the No. 1 concern among NFP plan sponsors is that employees will delay retirement because they do not have enough money.

The first “Not-for-Profit Plan Sponsor Insights Survey” also finds that almost 60 percent are concerned their employees will run out of money in retirement—far more than the 38 percent who worry about meeting responsibilities as a plan fiduciary.

In a sign of what could help their for-profit counterparts, more than half of NFP plan sponsors offer a plan with a guaranteed lifetime income option, and the majority (87 percent) say they plan to keep it.

Those who do not provide a lifetime income option in their plan include 34 percent who say participants can access annuities outside of the plan and 21 percent who believe fees are too high.

TIAA says that plan sponsors may also want to re-think their expectations for how employees will draw down their savings. One-third (35 percent) expect their employees to generate retirement income only through systematic withdrawals.

Providing education and advice

Survey results also show plan sponsors recognize the “crucial role personalized support and advice play in employee outcomes.” However, many are unsure of the best way to engage their employees: 81 percent of plan sponsors offer one-on-one financial advice services, yet 71 percent say getting their employees engaged in the plan is a significant challenge.

“Plan sponsors can work with their providers to offer a comprehensive employee engagement program and identify services that may be most effective for their specific employee populations,” Ron Pressman, CEO of Institutional Financial Services at TIAA, said in a statement.

Fifty-five percent of plan sponsors consider it a significant challenge to measure the success of their retirement plan. When asked about the most important measure of a plan’s success:

  • 27 percent of sponsors cite participation rates, with 52 percent tracking these rates for their plan.
  • 21 percent say participant income replacement rates/retirement income adequacy is the most important measure, but only 14 percent track these rates.

“Participation rates are important, but they are just a starting point. The true measure of plans’ effectiveness is whether employees have adequate income throughout their retirement, and feel secure in knowing they won’t outlive their savings. The yardstick for plan success should reflect these goals,” Pressman added.

Ongoing tracking of income replacement rates better enables employers to know if their employees are on track for retirement. Most experts recommend that employees aim to replace 70-100 percent of their preretirement income during retirement. However, 47 percent of sponsors surveyed think their employees should target an income replacement rate of 70 percent or less.

Fiduciary focus

As plan sponsors focus on preparing their employees for retirement, results reveal they are also working to ensure they meet their fiduciary responsibilities and offer compliant plans.
Last year’s introduction of the Department of Labor (DOL) Fiduciary Rule has brought heightened attention to fiduciary practices, and these concerns are top of mind for many.

  • 38 percent of NFP sponsors worry about meeting responsibilities as a plan fiduciary.
  • 31 percent are concerned about the impact of the DOL rule.
  • 24 percent worry about criticism regarding plan administrative and investment fees.

However, these concerns still rank below core plan goals like getting employees through retirement. That may be because many plan sponsors report strong and disciplined plan management practices, such as conducting formal reviews of their plan options and services.

Plan sponsors report that over the next 12 months they will conduct a formal review of their:

  • administrative fees (39 percent),
  • investment menu (39 percent),
  • investment fees (38 percent), and
  • plan design (34 percent).

Sixty-five percent of plan sponsors have an Investment Policy Statement (IPS) in place to guide their investment monitoring and selection process, and 12 percent plan to create one in the next 12-24 months. They look to experts for support, too. Eighty-six percent report having a plan advisor and of those, 88 percent report the advisor is a fiduciary.

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