If retirement plan sponsors want to keep retirees in their plans, it’s crucial that they engage with participants early and often, says Lorie Latham, senior defined contribution (DC) strategist with T. Rowe Price, in “Bridging the Gap Between Accumulation and Decumulation for Participants: A Guide for Plan Sponsors.”
Focus groups conducted by T. Rowe Price revealed that many retirement plan participants have misperceptions about the costs of their defined contribution plans. Others expressed a lack of trust that DC plan sponsors had their best interest in mind.
Some of the comments about DC plan fees included:
- There are “a lot” of hidden fees;
- DC plans have extra fees that do not exist at the retail level; and
- Employers do not care about lowering fees.
The research also found participants have limited awareness of the buying power and scale of their employer-sponsored plan.
Misperceptions about plan sponsor motives related to DC plans included that they may not be looking out for their participants’ best interests, and they may be receiving kickbacks.
Latham says plan sponsors are not getting credit for the fiduciary work they are doing for their plans and participants. She suggests plan sponsors should actively convey to participants their work to control fees, the oversight of plan investments, the value asset consolidation and scale brings to the plan and that participants will continue to receive credible information and resources by keeping assets in the plan.
According to Latham’s study report, many focus group participants—especially those near or at retirement—made frequent references to “choice” when discussing retirement plans. Focus group conversations also revealed there is a consistent perception that individual retirement accounts (IRAs) provided participants with more investment options. Participants viewed the list in a DC investment lineup as limiting.
“It appears that many participants are unaware of the work that goes on behind the scenes by plan fiduciaries overseeing the plan and their consultants, who wade through the full landscape of investment offerings and select investment options that are in the participants’ best interests,” Latham says.
She suggests plan sponsors make an effort to switch the focus from a “more is better” mindset to a “quality” mindset. They should take time to explain the level of care and attention taken to curate the DC plan investment lineup, as well as share that the plan sponsor’s duty is not only based on investment performance, but is also focused on bringing participants the best value for their money. And, again, Latham recommends sharing the benefits of buying power as plan assets grow.
Many focus group participants said they were struggling with the idea of drawing from retirement savings. They may go to multiple sources to find information and help.
While some focus group participants shared good experiences getting help from plan sponsors and advisers, one referenced following someone on social media and making decisions based on what was suggested on that platform. One participant described some predatory practices toward pre-retirees: “[A popular social media site] has all sorts of stuff that hits you all the time. Once they find out you’re retired, you get every known financial adviser pitching you.”
Latham offered suggestions for plan sponsors to become a trusted resource for retirement plan participants:
- Avoid jargon when communicating with plan participants and use relevant, focused content that comes with a strong call to action;
- Offer insights early and often in the retirement journey. Retirees view the plan sponsor and recordkeeper as a trusted source of information, so be sure to build on that trust by engaging with participants over time; and
- Be informed. Ask your plan provider how they communicate the option of staying in the plan. When do they start communicating retirement account options? Do they offer advice to participants at the time of retirement? Is it a balanced approach about the benefits of both staying in plan and rolling over?
In final thoughts, Latham says, “If your committee would like to maintain retirees in your plan, don’t keep it a secret. Engage early, communicate often, and ensure that the opportunities to engage and communicate are not limited to the point in time at retirement. Moreover, it’s crucial that plan sponsors provide high-quality, trusted insights and guidance that cut through the noise and misinformation participants may receive from external sources.”
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