Plan Sponsors Actively Evaluating, Changing TDFs

A BlackRock survey shows four in 10 DC plan sponsors say they have changed or added TDFs in the past 12 months.

Concerns about turning current savings into retirement income jumped significantly year-over-year, according to BlackRock’s 2019 DC Pulse Survey of more than 1,000 defined contribution (DC) plan participants and some 200-plus plan sponsors.

When it comes to the critical task of turning savings into retirement income, six in 10 workers (62%) are worried, up 14 percentage points from last year, according to a report summarizing the survey. At the same time, workers’ confidence in their progress stayed relatively flat after several years of growth. Sixty percent of survey respondents say they are on track to retire with the lifestyle they want, compared with 61%, 56%, and 52% in the three previous years.

Anne Ackerley, head of U.S. and Canada defined contribution at BlackRock, says it makes sense that workers feel increasingly challenged about how to best achieve a finally secure retirement.

“Even when workers are largely upbeat over their current financial situation, the thought of a secure retirement weighs heavily,” she warns.  

According to the BlackRock survey, women in general are more concerned about their retirement—as just 50% feel they are on track, compared with 69% of men. This is not necessarily a bad thing, however, as “a growing set of evidence suggests that women may also be more pragmatic in taking steps to alleviate their concerns,” according to the survey report.  

“For example, about seven in 10 women (71%), compared with 59% of men, say it would be helpful if their employer automatically reallocates their assets to more appropriate investments for someone their age,” the report explains, “leaving the complicated task of allocating assets to investment professionals to maintain the plans best thinking.”

The survey suggests this pragmatism also extends to retirement income, as 45% of women say retirement income is extremely important when selecting a retirement investment, as opposed to 38% of men. Other survey results show women are less likely to leave their plan after retirement (52% vs. 59% of men).

“Women are more likely to welcome guidance from their employer, take advantage of staying in their plan after retirement, and have a healthy respect for the difficult task of saving and investing for the future,” Ackerley observes. “This is equal parts about providing tools and empowering women with the right resources, and breaking down outdated narratives around women and investing.”

According to the BlackRock DC Pulse Survey, of all options, employers are most likely to actively encourage participants to look to target-date funds (TDFs) to support their retirement needs. In fact, this figure also jumped significantly over last year (56% favoring TDFs vs. 39%). Also notable, 39% of sponsors say they have changed or added TDFs in the past 12 months, “one of the largest reported changes since the survey’s inception,” as sponsors increasingly consider participant outcomes.

The survey report notes that about eight in 10 sponsors agree that plan participants would benefit from a TDF that has “a feature that generates guaranteed retirement income.” Putting that belief to work, 78% agree that “my plan’s current TDF can be used as a decumulation vehicle for participants in retirement.” This figure jumped from 57% last year.

When it comes to participants, eight in 10 agree that it would be helpful if their employer could provide secure income-generating options in the plan. About two-thirds (65%) say they would save more for retirement if their plan had an option providing guaranteed income.

According to BlackRock, employers have also broadened access to investment options that let employees express their convictions regarding environmental, social and governance (ESG) issues. More than a third (36%) of employers now offer an ESG investment option in their DC plans, up from 26% last year.

Other findings underscore the need for expanded participant education, with 56% of participants saying they would save more if their plan offered more education on planning and savings, and 62% suggesting digital tools could help them stay on track.

“There is a massive opportunity to improve the lives of millions of workers through tools and resources that help participants make better saving and spending decisions,” Ackerley concludes. “As an industry, we must reimagine retirement to make the process of saving for the future easy and intuitive. We all have a stake in preserving financial security once employment ends.”