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401(k) Stakeholder Priorities Not Always in Tune

New research reveals that there are surprisingly different perspectives among plan sponsors, recordkeepers and plan participants regarding the top priorities in evaluating the success of a 401(k) plan.

The first quarter 2018 issue of The Cerulli Edge – U.S. Retirement Edition finds, for example, that the most significant divergence between 401(k) plan sponsors’ top priorities and recordkeepers’ perceptions of their priorities relate to improving the quality of the investment lineup, minimizing fiduciary risk/avoiding litigation and reducing plan administration costs.

When examining stakeholder priorities, Cerulli notes that these points of divergence may offer opportunities for plan providers, advisors and consultants. The research draws upon data collected in three 2017 Cerulli surveys: 401(k) Plan Sponsor Survey, DC Recordkeeper Survey and a 401(k) Plan Participant Survey.

“The aim in comparing this data is to ensure that when recordkeepers communicate with plan sponsors, whether they are clients or prospects, they focus on the most important, broadly valued metrics and use the same language,” says Jessica Sclafani, director at Cerulli.

Investment Menu

The goal of improving the quality of the investment lineup apparently was the largest discrepancy. The report explains that recordkeepers may be significantly underestimating the importance plan sponsors assign to improving the quality of the lineup. According to the data, 27% of 401(k) plan sponsors identify improving the quality of the investment lineup as a top priority for the 2018 plan year, but only 4% of recordkeepers identify this topic as a top priority for plan sponsors. Cerulli suggests that recordkeepers may want to inquire with their clients about how they view the plan’s current investment lineup and possibly offer data and insights into what other plan sponsors are considering.

Fiduciary Risk

The second largest gap between sponsors and recordkeepers relates to addressing fiduciary risk. Somewhat surprisingly, significantly fewer plan sponsors than recordkeepers identify fiduciary risk as a top priority: 16% of sponsors view minimizing fiduciary risk and avoiding litigation as a top priority, compared to 36% of recordkeepers who perceive that as a top plan sponsor priority. A deeper dive into the data, however, reveals that sponsors of plans with greater than $1 billion in assets assign a higher level of importance to this category, as 20% of these mega plans view this option as a top priority.

Admin Costs

Reducing plan administration costs registered the third largest disparity, as 40% of recordkeepers  identified this area as a top priority for sponsors, yet less than a quarter (23%) of sponsors said the same. Cerulli notes that the recordkeeper experience, as revealed through this data, aligns with the firm’s second quarter 2017 survey of retirement specialist advisors, which showed that 40% of RSAs urged their DC plan clients to conduct a recordkeeper search because “costs are too high.”

Decumulation Focus

Cerulli’s report further recommends that plan sponsors may need to pay greater attention to metrics that relate to decumulation when gauging plan success. The report explains that the most commonly used metrics to benchmark plan success — participation rate, average contribution rate and percentage of participants taking full advantage of company match — are associated primarily with the accumulation of savings. Yet metrics associated with the decumulation of savings — such as retirement income replacement ratio (26%) and average projected shortfall or surplus (25%) — rank lower on plan sponsors’ list of considerations.

Financial Wellness

Cerulli also compares 401(k) participant data with 401(k) plan sponsor data to identify where the two groups may be talking past each other. According to the firm’s research, less than half of sponsors (44%) believe that employees are solely responsible for their own retirement savings and investing decisions, but 77% of participants feel they have sole responsibility for these decisions.

“While data shows that participants understand their obligation for funding their own retirement, this can be an overwhelming prospect, and does not always translate into healthy savings behavior,” the firm notes. It suggests that financial wellness programs that can position saving for retirement alongside competing financial responsibilities can be helpful tools for participants.

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