In order to help workplace retirement plan participants and plan sponsors get on or stay on track for a secure retirement income, advisors first have to have a keen understanding of their “pain points,” and how those pain points are impacting decision-making.
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To better appreciate today’s most serious financial concerns among both workers and employers, Boston-based MFS Investment Management recently conducted surveys that drill down on topics including the impact of inflation, retirement confidence, competing financial priorities, generating retirement income, and how plan participants want to receive financial advice.
401(k) Specialist sat down for a Q&A with Jeri Savage, Lead Retirement Strategist at MFS, to explore key survey findings and detail a range of emerging opportunities those findings present for retirement plan advisors.
401(k) Specialist: The latest MFS Global Retirement Survey polled more than 4,000 retirement plan participants in the U.S., Canada, UK and Australia. What are some of the key themes you found for participants globally, and were there any surprises about similarities and differences in responses from the various countries?
Jeri Savage: We see several key themes from our global retirement survey findings. First, the impact of market events has led to inflation concerns and overall retirement anxiety. Coupled with this, there is declining retirement confidence. The role of advice continues to be important and the sources of advice that participants look to are varied. When it comes to retirement income, a key theme is that there is no one size fits all solution. The biggest global takeaway is that we are more alike than we are different. Despite having four different countries and regulatory regimes, participants and members from all four countries show similar concerns with all of the topics I just mentioned. Retirement confidence is down, inflation concerns are up, and more than ever, people are looking for advice.
401(k) Specialist: You also have a new U.S. Plan Sponsor Survey that touches on many of the same topics, from the plan sponsor’s perspective. What are some of the key themes you found for sponsors and where is there potential alignment?
Savage: We are very excited to have a corresponding plan sponsor survey to compare and contrast our findings against the global retirement survey. The plan sponsor survey respondents represent over $81 billion in DC plan assets and nearly 750,000 participants.
In terms of themes, we look at retirement readiness and find similarities across participants and sponsors when it comes to declining retirement confidence and the belief that competing financial priorities are impacting retirement readiness. We look at how sponsors are reassessing their investment lineups and find just as market volatility is impacting participants, sponsors are contemplating changes to their investment lineups as a result. Sponsors are contemplating what retirement income looks like and the role an advisor can play. Finally, we have an entire section on employer concerns, what keeps sponsors up at night, and what they are focused on for the next year ahead.
401(k) Specialist: The survey showed inflation has become an even bigger concern than the last time it was conducted, perhaps not surprising with what’s happened on that front over the past couple of years. What is the result of this heightened concern, and what kind of actions are or should participants be taking to combat the effects of inflation?
Savage: Absolutely, we think volatile markets have given participants plenty to think about. We found 60% of participants are thinking differently about retirement because of inflation. This is rather consistent across men and women—slightly lower for men at 58% and slightly higher for women at 63%. In addition, the inflationary environment has also caused participants to become more conservative rather than aggressive (61% vs. 34%) and participants feel they will need to save more than they planned (75%) and work longer than they planned (58%) as a result.
Similarly, sponsors are contemplating changes to their investment lineups and using recent market volatility and inflation to reassess if their investment lineups offer the right options for participants. In our plan sponsor survey, we find 45% of sponsors are considering or have made changes to the fixed income investment options in their plans, with 18% saying they have added new fixed income options. 44% of sponsors are considering or have made changes to their equity investment options as well, where 12% indicate they have replaced an investment manager.
401(k) Specialist: The survey shows that retirement confidence is down by 11% since 2021, and in the U.S. only 34% think they’ll be able to retire when they want to. More participants saying they’re going to have to work longer or might not even be able to retire at all. What are some of the factors that are contributing to this decline in retirement confidence, and is there anything retirement plan sponsors or plan sponsors can do to help reverse this disturbing trend?
Savage: When we asked participants about their top financial concerns regarding retirement, we find both men and women are most concerned about the impact inflation could have on their retirement savings.
We also see declining confidence is being driven by competing financial priorities. We wanted to get a better sense of how participants think about their overall financial picture, and found 80% of respondents feel they have competing financial obligations.
The takeaway from this data is that financial obligations are certainly getting in the way of adequately saving for retirement—for all generations, but it especially skews more dire for the younger workforce at 89% for Millennials vs. 63% for Baby Boomers.
We think there is an opportunity here for sponsors to think about SECURE 2.0 provisions such as allowing for emergency savings or thinking about student loan/employer matching to help combat some of this. In fact, in our sponsor survey, 45% of sponsors said they expect to add an emergency savings solution in some form for their participants. 16% say they’d like to add matching to student loan payments. The fact that sponsors are focused on SECURE 2.0 provisions is a great thing, and building out capabilities that help address total financial health should help improve retirement confidence.
401(k) Specialist: What’s changing in terms of how participants would prefer to receive retirement planning advice today, and what kind of opportunities does this present for retirement plan advisors and plan sponsors to address these evolving preferences?
Savage: We asked participants about the resources they use to make retirement planning decisions and found a wide variety of sources. Anywhere from 42% of participants say they use a financial advisor, down to 17% say they consider a friend, peer or coworker to be a resource.
When we take a look at potential gender and generational differences, we see that men are more likely than women to use a financial advisor, to leverage online investment services and financial media. Then we see that women are more likely than men to turn to a family member for advice.
Looking at generational differences, we can see that Millennials are more likely to rely on their employer as a resource, as well as family and friends for example. Gen X is the most likely to use a financial advisor.
This data tells us that participants use a variety of resources and have different ways in which they want to access advice. This is an important consideration for plan sponsors, who are trying to reach their participants and think about the best way or ways in which to do so. It’s a good reminder that there may not be just a single way for participants to access advice.
We also asked respondents if their workplace retirement plan offered access to an advisor, would they use this resource? Again, the response was striking, with 70% of respondents answering an outright yes with another 20% answering maybe. Even though most participants say they have existing resources and sources of advice, there is still significant interest in speaking with a financial advisor if they were offered access.
401(k) Specialist: Momentum certainly seems to be building in the U.S. right now for in-plan lifetime income solutions as more attention is starting to get focused on the decumulation phase. What are participants looking for in terms of retirement income, and are plan sponsors ready right now to meet them there?
Savage: We’ve asked several questions around retirement income in both the participant and sponsor surveys.
There has been increasing interest among plan sponsors, particularly larger plans, in retaining the assets of retired participants in the DC plan. Our sponsor survey shows 40% of all plans actively encourage participants to remain in plan after retirement. We asked participants how important it is to be able to leave their assets in their employer sponsors retirement plan after retirement—and 67% answered it was somewhat, very, or extremely important. But then we asked participants when you retire, what do you plan to do with your retirement savings—and we find that only 12% say they will actually leave their savings in their employer retirement plan.
Instead, we see the most common action survey respondents expect to take upon reaching retirement age is to seek advice from a financial advisor (at 40%). For plan sponsors who wish to keep retirees in the plan, providing access to financial advice will be key. This can be accomplished through a variety of avenues—offering access to financial advisors or managed accounts, as examples.
401(k) Specialist: At MFS, you’re suggesting plan sponsors design a Retirement Income Plan Road Map to help articulate their retirement income philosophy that aligns corporate objectives with employees’ retirement goals. Can you tell us a little bit more about the Road Map and the two different types of plans it can lead to?
Savage: Retirement income is top of mind for many plan sponsors these days. Often, we find that the conversation focuses solely on products; what types of funds should sponsors consider that can help deliver a retirement income solution for their participants? We think the conversation should instead focus on creating and articulating a retirement income philosophy.
That brings us to the retirement income roadmap. There is no right or wrong answer, but we believe there are two potential types of plans. Do you want the plan to be an Accumulation Plan (where we define this as a means for accumulating balances throughout the working years and then once participants retire, they can do what they choose) or do you want the plan to be a Destination Plan (where we are defining this as actively trying to retain retirees in the plan)?
By thinking about this objective upfront, it will allow sponsors to take any necessary steps in the road map for either plan type. We believe the first step is to understand participant needs and survey the landscape, and then use those inputs to articulate the plan’s retirement income philosophy.
If the philosophy points to a Destination Plan, for example, then the plan can take additional steps to think about the proper plan design, what options should be available in the investment menu and any supporting services needed to help participants retire and stay in the plan. Conversely, if the philosophy is to create an Accumulation Plan, then the sponsor would think about supporting services to help retirees transition into retirement and potentially out of the plan.
Again, there is no right or wrong answer, but this is how we are approaching the retirement income problem and think it could be a useful framework for sponsors to think about approaching the often-confusing retirement income landscape.
This material is provided for general and educational purposes only, is not individualized to the needs of any specific investor and is not intended to serve as investment advice or as a basis for any investment decision.
The views expressed herein are those of the MFS Investment Solutions Group within the MFS distribution unit and may differ from those of MFS portfolio managers and research analysts. These views are subject to change at any time and should not be construed as the Advisor’s investment advice, as securities recommendations, or as an indication of trading intent on behalf of MFS.
MFS Fund Distributors, Inc., Member FDIC, Boston MA 02199
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
