Do your participants know how great their retirement plan is and how much work you put into making it so? Or would they be swayed by bad press about retirement plans or by attorney advertisements?
While it’s important that participants trust their retirement plan recordkeepers, they should also trust that plan sponsors have their best interests in mind.
Tout Your Plan Design
Natixis’ 2019 Defined Contribution Survey found that across all generations, the top reason employees said they participate in a company-sponsored defined contribution (DC) plan is a company match, which was cited by 56% of the respondents overall. The main reason American workers opt out of participating in their company-sponsored DC plan is that their employer does not offer a match or the match isn’t big enough (34%). A bigger company match would incentivize the majority of American workers (57%) to save more into their plan.
“We survey plan participants every year, and, consistently, the most valued plan feature is the company match,” says Edward Farrington, head of retirement at Natixis. “We understand not all plan sponsors are in a position to contribute to the plan, but, if they are, providing a match creates participation and trust in the plan and plan sponsor more than anything.”
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If plan sponsors currently provide a match, Farrington suggests they consider increasing it. “That creates a tremendous amount of goodwill with participants,” he says. “It also creates better results for participants. We all know if they can get up to a 10% or higher savings rate, including the company match, and save that for long enough, they will be able to have sufficient retirement income.”
Farrington says plan sponsors should communicate that they are offering a match and explain “the power of it.”
One in five (21%) workers surveyed by Natixis said if they had a way to automatically increase their contribution level each year (i.e., automatic escalation) it would motivate them to save more. Three-fourths (76%) of American workers said they would be more inclined to save if they could invest in the plan on day one of employment.
Although it takes time to play out, automatic enrollment and auto-escalation help create better participant behaviors and outcomes, and participants are grateful for them over time, Farrington says. “Starting savings early, maximizing the company match, getting the best fund performance, all of this helps participants. To the extent plan sponsors help them with these things, they appreciate it,” he says.
Farrington says plan sponsors can look into plan design more deeply to find hidden gems. Natixis research found that seven in 10 Millennials said they would invest in their company DC plan for the first time or increase their savings if they had access to responsible investments. Farrington says this is something to think about as Millennials are the largest percentage of the overall workforce. “There is evidence it could actually increase better behaviors without plan sponsors having to spend more money on the plan,” he says. “There are many strategies to integrate ESG [environmental, social and governance] investments into plans and they all can be done while meeting fiduciary duties.”
Fifteen percent of employees surveyed by Natixis said getting access to professional investment advice in their plan would incentivize them to save more. Nearly two-thirds (64%) of employees who participate in a company-sponsored DC plan said they want more education from their employer about their plan.
More personalization helps create positive participant engagement and action in plans, says Ben Lewis, senior managing director overseeing institutional sales, consultant relations and health care at TIAA.
This can be done with offering one-on-one advice and personalized projections on statements. “They’re interested in what they should be on track for and how they compare to peers,” he says.
“Participants know they are saving for retirement but don’t know what they should be on track to save,” Lewis adds. “Plan sponsors should do what they can to help participants know that and provide a path to do so—the steps to take to achieve the desired outcome, which is lifetime income. This builds happiness with the plan, success for participants and trust in plan sponsors.”
But personalization also is about “digging in and evaluating how different employee segments are doing—by age, gender or behaviors such as not optimizing contributions,” Lewis says. “We often help participants who are not optimizing the employer match by showing them how that can help with lifetime income and how it affects their paycheck today.”
He says it’s important to use personalized information for different employee segments. It’s also important to make information available through different channels. “We’ve seen a 150% increase in mobile use during the pandemic,” Lewis says.
Investment committees spend a tremendous amount of time selecting and monitoring DC plan investment menus, Farrington notes. “They take this responsibility seriously. Maybe it’s something plan sponsors could communicate more: the rigor that goes into evaluating and making sure costs are low,” he says. Farrington adds that plan sponsors should communicate to employees the benefit of participating in the plan versus buying investments on their own—the economies of scale and the institutional pricing, for example. “I think that would be greatly appreciated by plan participants and is probably undervalued by them now,” he says.
Farrington adds that it is also important to remind participants that when they see investment returns on their statements, they are seeing performance that is net of fees. “It’s good to know what you are paying for investments, but you should also understand that some that are more expensive may be performing well enough to earn that fee and then some,” he says.
“We haven’t seen plan sponsors offering information to participants about the processes they use” for investment selection and plan design decisions, Lewis says. “We believe making information available for people who want it is important, but plan sponsors should balance sharing information and not overwhelming participants. Getting participants to engage on information is a challenge.”
He says that’s why plan defaults are so important and points out that newly introduced legislation that the industry is calling the “SECURE Act 2.0” would make automatic features mandatory for new plans.
“One thing we really worked with our plan sponsors on is encouraging employees to engage with us for advice, whether by phone, the web or face-to-face,” Lewis says. “They should connect with us to ask questions.”
He says the majority of participants are not going to seek information to understand things such as fees, but plan sponsors should make sure they are highlighting the different ways plan participants can find information and get questions answered.
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