Almost all defined contribution (DC) plan sponsors say personalized advice and guidance can improve retirement outcomes, yet many struggle to build innovative plans, finds research from PGIM DC Solutions.
The first installment of PGIM’s study, conducted in partnership with Greenwald Associates, finds that 88% of employers believe tailored solutions are key to cultivating retirement readiness. This includes an interest in managed accounts, which PGIM reports increases significantly among plan sponsors when offered at lower price points. Sixty-three percent of plans say they are interested in using managed accounts with 10 or less basis points—considerably lower than the industry average of 25 basis points or more.
The attitudes are a notable deviation from target-date funds (TDFs), despite the fact that overall satisfaction with the investments is still high, reports PGIM. According to the findings, plan sponsors are “relatively satisfied” with TDFs and have relatively high conviction in certain exposures, including active fixed income, high-yield bonds and alternative assets such as real estate and commodities. However, concerns exist with respect to the glide path, volatility and lawsuit vulnerability.
Employers are also noticing the lack of personalization with TDFs, observes David Blanchett, head of Retirement Research at PGIM DC Solutions.
“I think target-date funds have been a fantastic innovation in the DC space; however, there’s a growing realization that they aren’t incorporating all available participant data into allocations that can have a meaningful impact on portfolios,” he said to 401(k) Specialist.
While plan sponsors note the competitive advantage that comes with offering an employer-sponsored 401(k) plan, 64% believe plans must be more innovative. Respondents listed plan communications as the area with the largest room for improvement, with 85% saying there is potential for customized communications to lead better retirement outcomes.
Others point out the benefits of incorporating artificial intelligence (AI), although only a few plans use the technology today.
PGIM’s findings present new opportunities for retirement plan advisors, Blanchett said.
“High level, while the results suggest plan sponsors are relatively satisfied today, especially with plan investments, there are key areas in which third parties and plan advisers can help,” he observed.
As affordable personalization tools are sought after by plan sponsors, so will access to financial guidance, whether that’s through digital platforms, human interactions, or a mix of both. Advisors should ensure participants are receiving financial help through whichever avenue is best available to them, Blanchett adds.
Furthermore, while there is agreement that real assets and alternative investments are important for improving risk-adjusted returns—and retirement outcomes—they are not widely available, notes Blachett. “Our research on plan menus suggests significant gaps in nontraditional asset classes in DC plans today and I think this is something in particular plan advisors can provide education around to plan sponsors,” he added.
Finally, plans that want to help participants incorporate lifetime income can provide tools that help with optimally claiming Social Security retirement benefits, Blanchett said. Eighty-one percent of respondents in PGIM’s research agree that a key component to achieving retirement success includes having access to tools and education that help navigate investment, spending, and Social Security decisions.
However, only 48% of plans offer tools to help retirees determine prudent spending levels and only 20% of plans offer Social Security claiming tools.
“We found that only 20% of plans were offering a claiming tool, which is up from our last survey, but well below where I think it should be,” he said. “Adding lifetime income solutions, like annuities, can also be valuable, but I’d like to see Social Security addressed first!”
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
