One-third of plan sponsors are now very or extremely confident in their participants’ ability to retire at their target age, up from 18% last year. The improvement has led plan sponsors to score a “B” rating in MFS’ latest Workplace Retirement Readiness Indicator.
Findings from the annual MFS Defined Contribution Plan Sponsor Survey highlights the increase in confidence among plan sponsors over the past year. The survey, which looked into insights from 153 employers who represent over $400 billion in plan assets and nearly one million participants, examined leading trends including personalized advice, the demand for alternative investments, target-date funds (TDFs), and active management.
It found that plan sponsors are growing increasingly confident in their participants, either due to strong contribution rates (94%), participant engagement (67%), and the use of tools and services (54%).
Despite their improvements, plan sponsors note major concerns among participants with the current economic climate (77%), likely exacerbated by growing inflation and day-to-day costs.
“Economic concerns will always factor into confidence levels, but the survey responses indicate that the steps plan sponsors are taking to engage and serve participants are successfully breaking through and resonating,” said Jeri Savage, head retirement strategist at MFS, in a statement. “The challenge will be to continue to reinforce these efforts over time — not just with education, but with personalized advice.”
MFS’ survey finds that 70% of plan sponsors say personalized advice is crucial to improving retirement outcomes, with 74% who currently offer advice services, 62% who provide direct access to personalized advice for all participants, and 37% who deliver similar services through an in-plan, managed account offering.
Participants are also looking for personalized guidance, with 71% who say they would work with an advisor if their plan offered access to one.
Alternative investments not tracking
Despite the White House’s push to open access to private market investments in retirement plans, MFS finds that sponsors have remained cautious with alternative strategies.
Most sponsors say they have little to no interest with including alternative strategies in plans, and 64% say that participants demonstrate little if any interest in the asset class.
Rather, MFS argues that most of the attention towards alternative investments has stemmed primarily from media outlets, with many reporting about the assets’ potential exposure to retirement plans. “While alternative assets may one day find their way into qualified retirement portfolios to a greater extent, today, it’s quite possible that headline hype is driving a solution in search of a problem that has yet to reveal itself in a materially significant way for participants,” Savage said.
Push for accumulation, active strategies
Target-date funds (TDFs) continued as the top qualified default investment alternative (QDIA), with 86% of plan sponsors confirming the asset type as its primary option.
When asked what specific risks they hoped to address by offering TDFs, 38% of plan sponsors listed diversification as their top risk, followed by downside market risk near retirement (22%), behavioral risk (19%), and longevity risk (12%).
Others are prioritizing active policies to help with market volatility and investment opportunities, as 65% of employers plan to offer actively managed strategies.
“The data suggests that active management continues to play a prominent role, particularly in larger plans, where sponsors are more likely to integrate active investments into their offerings,” said Savage. “This balance between active and passive strategies underscores the flexibility and diversity that sponsors aim to provide in their DC plans when considering plan menus.”