Underperformance of plan investment options has heightened the anxiety level of defined contribution plan sponsors, according to a new report.
The Cogent Syndicated Retirement Planscape report from Escalent reveals that the top concerns include employees not saving enough for retirement, fiduciary issues and potential lawsuits. But these challenges create an opportunity for plan providers to offer support.
When asked what support they could benefit from the firms they work with, compliance and help with regulations is the biggest opportunity, followed by help with employee engagement and participation in the plan.
“Creating a retirement plan that is attractive to employees is even more difficult in the current volatile economic and talent environment,” notes Sonia Davis, Senior Product Director at Escalent. “In order to combat participant fears, our research supports that plan sponsors need to encourage employees to keep a long game strategy, avoid drastic withdrawals that will hinder future retirement readiness and think beyond saving by seeking help with their decumulation phase.”
Becoming increasingly pessimistic about the U.S. economy due to the Ukraine war and market volatility, 37% plan sponsor respondents say they expect domestic marketplace conditions to worsen, up from 20% in 2021. Concern about underperformance of plan investment options continues to grow, with 57% of plan sponsors concerned in 2022, increasing by 6% since 2021.
“For plan providers, understanding the most pressing issues their customers face and demonstrating capabilities that provide solutions will strengthen client loyalty and pave the path to new business growth,” adds Davis.
This year’s report also asked plan sponsors to share what specific steps firms could take to make their roles easier. According to the findings, recommendations include:
- ensuring the investment lineup is robust enough for all employee classes;
- maintaining a plan design that differentiates us from other employers as we compete for talent; and
- more targeted videos/communications for participants.
Pathways to Success
In addition to plan sponsors’ stated needs, the firm analyzed the effectiveness of a variety of pathways that plan providers and investment managers could take to enhance consideration potential and drive business growth.
For plan providers, the report asserts, the most direct pathways to consideration are:
- a combination of product and service innovation, choice in investment options and thought leadership;
- demonstrating reliability through brand trustworthiness;
- being easy to do business with; and
- plan sponsor service and support.
For DC investment managers, the most efficient ways to build consideration are:
- strengthening perceptions of reliability (brand trustworthiness and style purity);
- expertise, such as target date solutions;
- investment philosophy;
- investment research;
- portfolio/risk management; and
- investment performance.
The findings are based on an online survey of a representative cross section of 1,267 401(k) plan sponsors from Feb. 11–March 8, 2022. Survey participants were required to have shared or sole responsibility for plan design, administration or selection and evaluation of plan providers, or for evaluating and/or selecting investment managers/investment options for 401(k) plans.
