In years past, the top reason sponsors decided to use a plan advisor was for help with plan investments, but that apparently has shifted this year, according to Fidelity Investments’ Plan Sponsor Attitudes Study.
In the 11th iteration of the study, Fidelity looked back at data after the financial crisis in 2008 to gain perspective on plan sponsors’ areas of focus during what were also uncertain times. 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%). This year, however, Fidelity found that the top reason was for help with the increasingly complicated process of managing a retirement plan (29%)—although plan investments will likely become an area of focus again in the future.
The findings are based on an online survey of 1,555 plan sponsors conducted during February 2020. Respondents were identified as the primary person responsible for managing their organization’s 401(k) plan; all plans had at least 25 participants and $3 million in plan assets.
When asked how their plan advisors underscore their value, more than half of sponsors (56%) cited performance of plan investments. Overall, a majority (53%) of sponsors said investment menu changes were driven by a desire for better performance. Nearly three-quarters of plan sponsors (74%) 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%).
In addition, 44% of sponsors reported that they review performance of their plans’ investment options at least quarterly, which was 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,” says Liz Pathe, head of DCIO Sales, Fidelity Institutional. “Plan advisors can play a more active role by proactively reviewing plans’ investment menus with sponsors and working to address their concerns.”
The study also found that 92% of plan sponsors reported 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.
Plan Design Changes
Most (82%) plan sponsors have made changes to plan design in the past two years, with the company match appearing to be top of mind. Three of the top four changes made over the past two years included adding a matching contribution, increasing the matching contribution amount and changing the matching formula. Adding a Roth contribution option rounded out the top four.
This year’s study also revealed that plan sponsors working with advisors have made certain 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).
It has been presumed that plan sponsors may be assessing changes to plan design given the current market environment, including the matching contribution. However, based on data from 914 attendees of Fidelity’s April 16, 2020 plan sponsor webinar, most (63%) said they are not considering a reduction or suspension of their company match.
What’s more, according to data from Fidelity recordkept plans, 10.1% of participants increased contributions in April 2020 versus 8.9% in April 2019, and only 2.5% stopped contributing versus 1.5% last year.
The Big Picture
The top overall concern for plan sponsors was whether their plan is effectively preparing employees for retirement financially, consistent with previous years. Fidelity also surveyed in late March nearly 1,000 plan sponsors that recordkeep with Fidelity and their top concern was employee financial well-being.
“While supporting their employees’ retirement readiness has always been a top priority for plan sponsors, the current market crisis has accelerated its importance,” notes Pathe. “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.”
Beyond Retirement
Fidelity notes that plan sponsors and plan advisors continue to look beyond retirement preparedness at employees’ full financial pictures. Many report that they are seeing the value of implementing programs to support employees’ financial wellness, health care and student debt payments.
- More than half of plan sponsors said they offer financial wellness programs to employees (57%), and the number is significantly higher for those with advisors (59%) than those without (38%). Of plans with programs, 61% reported the programs have had a strong positive impact on employees.
- Most sponsors said they offer a High Deductible Health Plan (56%), and of those that do, 86% also offer a Health Savings Account. Employees may not fully understand the benefits of HSAs, as sponsors that offer them reported that only 40% of all employees choose to enroll. Eight in 10 plan sponsors offering HSAs said they would be willing to pay to have someone provide HSA education to employees.
- Nearly two-third of companies (64%) are aware of student loan repayment programs for their employees. Forty-four percent of those without programs said that they feel employees would be interested in a program that could help them both save for retirement and pay their student loans. And 68% of sponsors with repayment programs saw a positive response from employees, Fidelity notes.
