Gaps Between Plan Sponsor Intent and Plan Realities

J.P. Morgan Asset Management released the results of its 2013 Defined Contribution [DC] Plan Sponsor Survey, which highlights a clear gap between the intent to provide retirement well-being for plan participants and the actual approaches used to achieve results. It also uncovered issues that may be impeding the attainment of plan objectives.

According to the survey findings, employers consider their role to go beyond just providing an effective 401(k) plan, but measurement does not always reflect this goal. For example, more than 75% of plan sponsors rate “increasing financial security” and “helping ensure employees have a financially secure retirement” as highly important, with percentages reaching into the 85% to 90% range for larger plans. This suggests that concern goes beyond the realm of 401(k) plans. Sixty percent of plan sponsors say they have a somewhat high to very high sense of responsibility for the “overall financial wellness of employees,” yet only about 40% see the number of participants with account balances on track to provide retirement security as a highly important measure of success.

The survey also found that many plan sponsors need a nudge in the right direction, as well as some proactive guidance. For example, only 14% of plan sponsors say their adviser or consultant proactively suggests new ideas and shares best practices for evolving their plan. In addition, while many participants continue to underestimate how much income they will need in retirement, only 25% of plan sponsors have considered promoting an understanding of what participants are on track to receive in retirement as a top communications goal.

“Employers see the need for change, but most need help in determining the best approach for their plan,” said Catherine Peterson, director of retirement insights at J.P. Morgan Asset Management. “The new generation of 401(k) plan components—from design to investments, communications and administration—is readily available and simply needs to be prioritized, coordinated and managed toward plan objectives and goals. There is a second generation 401(k) plan emerging and it shouldn’t be reserved for large plan sponsors only.”

The survey also found that employers are more worried about participant reactions than they need to be. The reason most frequently given by plan sponsors for not introducing automatic enrollment (27%) or automatic contribution escalation (30%) is concern that employees would disapprove of these features. In reality, a recent participant survey by J.P. Morgan (2013 Plan Participant Survey Findings) suggests greater support for these features than employers may think. Only 20% were opposed to such a combination. And two-thirds of respondents had a high level of trust in their employer’s ability to select an appropriate retirement plan provider and set investment options.

“The implementation of automatic features is absolutely critical to helping participants achieve optimal outcomes,” said Peterson. “Industry research shows that, once enrolled in a plan with auto-enrollment and auto-escalation, less than 10% of participants ever opt out. Imagine the impact these auto-features can have on the saving habits of those employees. Providing more Americans with the experience and satisfaction of a secure retirement calls for the continued evolution of 401(k) plans with all parties contributing—participants, employers, advisors, plan providers and policymakers.”

J.P. Morgan Asset Management conducted the survey online with 796 plan sponsors from December 18, 2012, to January 25. Each respondent was a key decisionmaker with respect to the organization’s defined contribution plan. All companies represented have been in business for at least three years, offer a 401(k) or 403(b) plan to their U.S. employees and have at least 10 full-time employees.

The full findings of the survey can be viewed here.