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Plan Sponsors Prioritizing 401(k) Plan Design as Part of Talent Strategy

DC Plan Design

As the economic climate becomes more complex, plan design has emerged as a differentiator to help drive employee enrollment and support the company’s talent strategy, according to new research.

Because 401(k) plans continue to be an essential workplace benefit, plan sponsors are emphasizing the need for a competitive plan with a range of features to meet the evolving financial needs of a diverse workforce, reports Morgan Stanley at Work.

Based on findings from its 2022 Plan Sponsor Retirement study, plan sponsors continue to see the 401(k) as a leading retirement benefit when it comes to attracting and retaining talent. Not surprisingly, 401(k) plans with a financial advisor or that offer features like a Roth and company match, are seen as more attractive with higher enrollment rates. 

In fact, access to a financial advisor strongly correlates with employee participation, the firm suggests. Moreover, workplace 401(k) plans with a plan advisor may see better outcomes in employee participation than those without an advisor. Of those plan sponsors who reported full employee participation, 80% had a plan financial advisor, with the remaining 20% not having one. 

Plan Design and Engagement

Plan sponsors identified automatic escalation (43%), automatic employer contribution (40%), and automatic enrollment (37%) as plan features with the highest participation. Companies that offer a match of more than 5% are significantly more likely to see higher rates of participation among eligible employees than companies that matched at a lower rate.

The study also points to an increased need for employee financial education that is engaging, digital friendly and tailored to specific life or financial stages. To that end, plan sponsors are looking for shorter, more interactive, more specific content tailored to their employees’ needs.

Most (87%) believe providers are sharing engaging participant retirement and financial education. However, they say content should be even more engaging and based on individual financial stages (44%), delivered through digital tools (39%), and specifically tailored to life events (36%).

When it comes to the employee position, 48% of plan sponsors report that a 401(k) is most influential for mid- or higher-level employees. While 22% of plan sponsors agree that a 401(k) helps talent strategies for all level of employees.

For employees who don’t participate in the plan, the study found that 62% of plan sponsors attribute it to their employees wanting access to their full paycheck as the primary reason, even though they are eligible. This was followed by having other types of investment accounts (22%) and not seeing the value of a 401(k) (15%).  

Concerns and Challenges

As to plan sponsors’ top concerns, fiduciary responsibilities (26%) was cited as the top concern, following by employee education (24%), compliance and regulations (23%), and protecting participant data (20%).  

Regarding plan management and the most difficult part of managing a 401(k) plan, plan sponsors (20%) agree the most difficult task is educating employees on the value of the 401(k) and the value of a financial advisor for that plan, over more administrative tasks such as onboarding (12%) and required plan sponsor obligations (9%).

“The dynamics of today’s economy have changed, with employers and employees alike juggling numerous competing financial needs,” observes Anthony Bunnell, Head of Retirement for Morgan Stanley at Work. “So, it’s not surprising that plans with Financial Advisors are associated with more engaged employees, as a Financial Advisor can play a central role not just in managing the plan, but in helping employees navigate the markets and invest in their future.”

The findings in the 2022 plan sponsor study are based on a focus group and survey data conducted in the third quarter by Rebel & Co. among 710 individuals responsible for selecting or managing their company’s 401(k) plan. The data represents a range of company sizes that offer a 401(k) plan.