The Top Reasons for 401k Plan Participation?

Respondents to a new survey also list excuses for not enrolling

401k, financial wellness, retirementWhat does it take to get participants to push the button?

Replacement ratios and retirement readiness are all the rage, as 401k plan sponsors focus on fiduciary responsibilities and participant outcomes in the face of regulatory uncertainty and rising litigation, a new Deloitte survey finds.

Little surprise, sponsors are using lower cost options, direct fees and simplified investment approaches to “help participants tackle future retirement income needs” with the “evolving legislative landscape, shifting fiduciary responsibilities and efforts to optimize human capital balance sheets” acting as driving factors.

“As contribution and investment decisions move from the hands of finance departments to individual participants, the expertise of plan sponsors has shifted from a financial management role to a keen attention on their fiduciary oversight role,” Stacy Sandler, principal, Deloitte Consulting LLP, said in a statement.

The survey also identified the top reasons for participation in a defined contribution plan, with “taking advantage of the company match” surpassing “a personal desire to save for retirement.”

“Lack of awareness or understanding” was the leading reason that employees did not participate, while a past top-reason “uncertain economy/job market” continued its downward trend.

Financial Wellness Takes Center Stage

Plan sponsors have responded to an increased focus on their fiduciary role and financial wellness concerns by taking behavioral finance approaches and leveraging “tailored technological solutions” at their disposal.

Deloitte’s survey indicates that 66 percent of employers want providers to focus on enhanced plan sponsor websites and tools that will help them identify where to concentrate their education efforts.

Plan sponsors have been concentrating on getting the right messages to the right audiences in the right way.

The most popular form of communication is demographic targeting, with 65 percent of employers using it, compared to 54 percent using activity-based and 45 percent using behavior-based targeting.

Financial analytics are also playing an increasingly important role in broader financial wellness and through integration with defined contribution plan offerings.

In fact, 65 percent of those surveyed have cited the introduction or enhancement of “auto-pilot” solutions, such as auto-enrollment, step-up features, and managed accounts, bringing automatic enrollment to the third most-cited reason for participation in this year’s survey.

The Match Is Unmatched

Talent acquisition, engagement and retention concerns seem to underpin trends in companies matching contributions, with nearly 93 percent of survey participants revealing that they offer some form of matching or profit-sharing contribution in their defined contribution plans.

Signifying its importance, matching contributions upon plan participation increased to 74 percent in 2017 regardless of company size, continuing an upward trend.

More than half of plan sponsors responded “yes” when asked if there is a true-up of the employer match at the end of the year in certain situations, a nearly ten-point rise from 45 percent in 2015.

Retirement as a Retention Tool

As companies battle for top talent, the survey showed a slight increase in the number of employers indicating their defined contribution plan is an effective recruiting tool, and 62 percent of respondents believe their plans are effective in retaining existing employees, marking a continued decline in this sentiment since 2012.

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