Sponsors of Fully Automated Retirement Plans Feel They Are Reaching Goals

Seventy percent think their approach will help employees retire at their targeted retirement age, compared to only 43% of plan sponsors without this specific plan design.

Proactive plan sponsors are much more likely (71% versus 47%) to believe that their workers are on a path towards a financially secure retirement, according to a report from J.P. Morgan Asset Managment, “The Power of Being Proactive.”

In the survey, proactive plan sponsors were actually those who indicated “that they place participants on a strong saving and investing path, through features such as automatic enrollment, automatic escalation, and streamlined investment decisions, like a target-date fund.”

Additionally, 70% think their approach will help employees retire at their targeted retirement age, compared to only 43% of plan sponsors without this specific plan design.

J.P. Morgan found 41% of plan sponsors fully automate their plans in this way, while 59% allow their participants to make their own choices. Among those that the firm says are proactive, 87% believe that their approach is an appropriate benefit for their organization, compared to 74% of other plan sponsors. They also think their plan design demonstrates their level of care about employees (84% versus 64%), helps them in recruiting quality employees (74% versus 57%), helps their workers appreciate their compensation package (71% versus 60%), motivates employees (71% versus 50%) and helps them retain quality employees (69% versus 56%).

“We still see a sizeable gap between the importance plan sponsors place on their goals and how successful they believe their plans are in achieving them,” says Catherine Peterson, managing director, global head of insights programs at J.P. Morgan Asset Management. “The survey demonstrates the benefits of plan sponsors taking a proactive approach through measures such as automatic enrollment, automatic contribution escalation and streamlining investment decisions.”

The survey also found 55% of plan sponsors use automatic enrollment, up from 28% in J.P. Morgan Asset Management’s first survey in 2013. Thirty-eight percent use automatic escalation, up from 21% in 2013. While sponsors that do not use these tools said they thought employees would push back on them and/or should take financial responsibility themselves, J.P. Morgan’s 2018 DC Participant Survey found that most participants are in favor of automatic features, or are neutral about them.

Sixty-two percent of sponsors offer target-date funds (TDFs), up from 46% in 2013. Seventy-five percent of sponsors are highly confident in their selection and monitoring of TDFs. However, 30% said they do not have a solid understanding of how their TDFs work.

Seventy-one percent of sponsors work with an adviser or consultant, and among this group, 67% are satisfied with the service advisers are providing to them. However, only 24% are very satisfied. Forty-one percent of those sponsors working with advisers say their adviser comes to them with new ideas and best practices.

In sum, J.P. Morgan says that being proactive is a win-win for both plan sponsors and participants. Sponsors still need to learn more about how TDFs are constructed, and there is an opportunity for advisers and consultants to work with sponsors on these strategies.

“Significant progress has been made to strengthen DC [defined contribution] plans, with plan sponsors showing a strong and growing commitment to their employees’ fiscal health,” says Meghan Jacobson, executive director with J.P. Morgan Asset Management. “However, the fact that many plan sponsors are still falling short of achieving their goals suggests that more needs to be done to adopt a proactive approach.”

The firm’s findings are based on an online survey of 838 sponsors that Matthew Greenwald & Associates conducted between January and March of this year.