Plan sponsors are listening to their participants’ needs for retirement savings and preparation.
A new survey by PGIM, conducted in partnership with Coalition Greenwich and based on 155 DC plan sponsors, finds that seven in 10 defined contribution (DC) employers believe they are taking steps to solve the retirement income challenge, with the majority still in the education phase. According to the survey, 15% of plan sponsors are in the process of evaluating products or implementing a solution.
PGIM reports that 34% of plan sponsors are in the initial stages of learning about retirement income approaches, while 14% are in the process of better understanding participants’ retirement income needs. Just 3% are formally evaluating whether to add retirement income solutions to their 401(k) menu, and 8% are in the process of evaluating specific retirement income solutions/products to add to their plan.
Seven percent of plan sponsors are implementing—or have already implemented—a retirement income solution/product, 8% have evaluated retirement income solutions but ultimately decided not to pursue, and 27% say retirement income approaches are not a topic of interest or need at the time.
Of the plan sponsors pursuing an approach, stable value (70%) and the income fund of a target-date fund (TDF) series (46%) are the most offered vehicles, with annuities, long-duration fixed income funds, and managed accounts the most likely to be considered for future inclusion, finds PGIM.
Slight uptick for alternative investments
While most DC plan sponsors do not offer alternative investments (PGIM research found just 9% of employers use private equity real estate in TDFs and only 6% incorporate private credit or private real estate debt), more are opening up to the idea of alts in their funds.
PGIM reports that plan sponsors are slightly more lenient on alternative funds now compared to 2020. Thirteen percent of employers say they don’t believe in alternatives as an investment perspective today, compared to 28% who said the same in 2020. Additionally, 13% aren’t considering alts at the moment due to a lack of internal expertise, compared to 17% three years ago.
Instead, the top three reasons sponsors are hesitant to offers the investments include a lack of participant education, operational challenges, and the associated costs for doing so. Another motive against its inclusion is litigation risk, which saw the highest increase since 2020.
Mixed views on ESG
As environmental, social, and governance (ESG) investing remains a hot topic in 2023, PGIM’s survey reveals varying views on sustainability. One in four DC plan sponsors report offering at least one ESG fund in their 401(k) menu, and 12% are offering an ESG target-date fund series, while 36% of respondents say ESG is not a topic of interest. Others are focused on education surrounding the topic (32%), from identifying their internal organizational goals (39%) and learning about ESG approaches to understanding the participants’ ESG needs (28%).
On the action side, 14% of plan sponsors are adding more ESG options to their 401(k) menu, 14% are offering tools to help educate participants about ESG, 12% are seeking ESG reporting on current 401(k) investment options, and 12% are updating the investment policy statement to address ESG.
Additional insights from PGIM’s “DC Solutions: The Evolving DC Landscape,” can be found here.
SEE ALSO: