Lasting impacts brought on by the COVID-19 pandemic have caused major barriers for employees to reach financial wellness and retirement readiness goals. As a result, BlackRock says, more plan sponsors are taking steps to tackle the changing environment for their workers.
The 2021 “BlackRock DC Pulse Survey” found that 61% of the 225 large defined contribution (DC) plan sponsors surveyed said at least half of their employees faced negative impacts with their retirement readiness. Fifty-two percent of employers also noted that more participants withdrew or borrowed money from their retirement savings than normal due to COVID-19.
Consequently, almost all plan sponsors surveyed feel accountable for the financial and overall well-being of their employees. Ninety-six percent surveyed say they have a sense of responsibility for their employee’ retirement readiness and general financial well-being, and 68% say helping participants with retirement income has become even more important to them due to the pandemic. Thirty-seven percent cite the impact of COVID-19 as the most important factor in considering changes to their plan.
Still, most plan sponsors are sure there will be a recovery in retirement income and readiness. Fifty-three percent of employers stated they are highly confident in the current state of their participants’ retirement readiness, and 61% are highly confident in their ability to educate participants about their plan.
More are also planning to implement additional automatic features, thanks to the growth of automatic enrollment, which has heavily contributed to the surge of employee contributions in the past decade. A recent Vanguard report underscored the weight of the feature, finding that 90% of participants who are automatically enrolled in their retirement plans increase their deferral rates, either through automatic escalation or on their own.
The BlackRock survey reports that 63% of the 1,000-plus participant respondents automatically increase what they save for retirement annually. Sixty-eight percent automatically reallocate their assets to more appropriate age-based investments, and 68% have used auto-enrollment to enroll themselves into the plan.
Of the age groups surveyed, Millennial workers were found to be the most responsive to auto-features. Seventy-six percent automatically up their retirement savings on an annual basis, 81% will automatically reallocate their assets to more appropriate age-based investments, and 79% have used auto-enrollment to enroll themselves into a plan.
Interest in environmental, social and governance (ESG) investing continues to grow among participants as well, and especially with Millennial investors. Seventy-three percent of general respondents believe it is either somewhat or very important to incorporate ESG options, compared with 64% in 2020 and 62% in 2019. Forty-nine percent of Millennial respondents believe it is very important to have ESG options, while only 20% of Gen Xers and 11% of Baby Boomers agreed. As more employees demand ESG funds in their investment options, employers are considering adding such options to their plans, with nine in 10 planning to add sustainable funds within the next 12 to 24 months.
Along with increasing usage of auto-features and implementing ESG options, employers are also recognizing the benefits of active management and alternatives. Many plan sponsors in the survey believe such strategies can grow returns and lessen the effects of market volatility, especially as part of a target-date fund (TDF). Eight in 10 plan sponsors in the survey agreed that active management approaches gain higher returns than index strategies and that active managers can consistently outperform the market. Among plan sponsors looking to include alternatives, their top reason for considering the asset strategy was to help provide higher levels of income for participants, according to the survey.
« Client Claims Self-Dealing by Russell Investments