Financial Education, Protecting Savings Themes for Plan Sponsors in 2021

Defined contribution plan sponsors are rethinking investments, but not much interested in annuities, T. Rowe Price finds.

More plan sponsors are emphasizing financial wellness practices in 2021, but, in a sea of offerings, some specific goals are taking precedence.

Among recent survey findings, a T. Rowe Price defined contribution (DC) consultant study found the No. 1 focus plan sponsors have for the upcoming year is improving employees’ financial knowledge. In a time when many have been rocked by economic hardship, employers are also working with their employees to determine how much to save and how to measure progress, along with building emergency savings, managing general debt and estimating retirement income needs.

Lorie Latham, a senior DC strategist for global investment services at T. Rowe Price, says she expects more sponsors and participants will focus on retirement income in the new year, especially concerning longevity risk. Latham anticipates a rise in employee education focusing on basic retirement savings practices, along with individual offerings including core bonds and stable value funds.

“Plan sponsors are looking more at stable value. They’re seeing a dual role for stable value to be used as a building block for those constructing a portfolio,” she says. Additionally, Latham says she thinks there will be a desire for a suite of retirement options, rather than select offerings, in the future.

Annuity options—which many thought would gain more interest from plan sponsors after the passage of the Setting Every Community Up for Retirement Enhancement Act (SECURE) passed in late December 2019—received the lowest interest marks in the survey, according to Latham. While many retirement industry experts say they believe annuities are misunderstood, plan sponsors are still wary of defaulting participants into an annuity, even with portability and safe harbor provisions, Latham explains. In an additional study conducted by T. Rowe Price, 61% of participants stated that the SECURE Act did not motivate them to consider lifetime income options.

“That may not be what every individual wants to pursue,” she says. “It’s still complicated for a plan sponsor to think about, ‘Do I have an in-plan annuity, out-of-plan, etc.’ It still brings a fair amount of complexity.”

Instead, Latham expects to see qualified default investment alternative (QDIA) evolve, as more participants consider their longevity in retirement and more plan sponsors become involved in participants’ retirements. According to T. Rowe Price research, there is an 80% chance or more of one person in a couple living past 80 years old.

“It’s now beyond a savings mindset and toward the retirement journey,” Latham notes. “The marker of ‘at retirement’ doesn’t mean that we should stop thinking about the approach to the portfolio and the growth.”