Pension & Benefits News Plan sponsors’ top concern is their plans’ effectiveness in preparing employees for retirement financially
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Thursday, June 18, 2020

Plan sponsors’ top concern is their plans’ effectiveness in preparing employees for retirement financially

By Pension and Benefits Editorial Staff

Consistent with previous years, the top concern among plan sponsors is whether their plan is effectively preparing employees for retirement financially, according to the 11th edition of Fidelity Investments’ Plan Sponsor Attitudes Study. Fidelity’s study also revealed that plan sponsors continue to make changes to their investment menus and plan designs in an effort to improve participant outcomes.

“While supporting their employees’ retirement readiness has always been a top priority for plan sponsors, the current market crisis has accelerated its importance,” said Liz Pathe, head of DCIO Sales, Fidelity Institutional. “Plan sponsors are looking for guidance and reassurance during this difficult time, and we continue to see plan advisors playing an important role in helping companies identify ways to improve their retirement plans and help their employees strengthen their financial well-being.”

Plan sponsors’ relationships with plan advisors. Fidelity looked back at how plan sponsors’ relationships with plan advisors have changed over the years. In 2010, the top reason sponsors decided to begin using a plan advisor was because they needed help with plan investments, especially given the market situation (35%), according to Fidelity. This year, the study showed that the top reason was for help with the increasingly complicated process of managing a retirement plan (29%).

The study found that 92% of plan sponsors reported that they work with plan advisors, and 70% are very satisfied with their relationships. Sponsors with advisors said they were more satisfied that their plans are achieving company (67% with vs. 56% without) and participant (66% vs. 50%) objectives. About seven in ten sponsors said they agree that they are getting good value from their advisors.

Increased focus on plan investments. Overall, a majority (53%) of plan sponsors said investment menu changes were driven by a desire for better performance. Seventy-four percent of plan sponsors have made changes to their investment menus in the past two years. The top changes were to increase the number of investment options (28%), replace an underperforming fund (23%), and add a target date fund (23%). Forty-four percent of sponsors reported that they review performance of their plans’ investment options at least quarterly, down from 58% last year.

“In our conversations with plan sponsors and advisors, investment performance is now top-of-mind given the potential for continued market volatility,” said Pathe. “Plan advisors can play a more active role by proactively reviewing plans’ investment menus with sponsors and working to address their concerns.”

Changes to plan design. The study revealed that 82% of plan sponsors have made changes to plan design in the past two years. The company match appeared to be at the top of the minds of sponsors, as adding a matching contribution, increasing the matching contribution amount, and changing the matching formula represented three of four top changes made over the past two years, according to Fidelity. Adding a Roth contribution option rounded out the top four changes.

Plan sponsors working with advisors have made certain constructive plan design changes at a higher rate than those without advisors, including increasing the auto-enrollment deferral rate (7% higher), adding a Roth contribution option (6% higher), and adding automatic increase (4% higher).

About the study. The 2020 Plan Sponsor Attitudes Study was an online survey of 1,555 plan sponsors on behalf of Fidelity. Fidelity Investments was not identified as the survey sponsor. The survey was conducted during the month of February 2020. Respondents were identified as the primary person responsible for managing their organization’s 401(k) plan. All plan sponsors confirmed their plans had at least 25 participants and at least $3 million in plan assets.

Source: Fidelity Investments News Release.

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