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What's Holding Plan Sponsors Back?

Ever wonder why automatic enrollment isn’t “automatic” with some plan sponsors, why others have qualms about QDIAs, and still others resist re-enrollment?

A new survey by JP Morgan Asset Management suggests a number of potential factors that may be hindering a more rapid adoption of plan innovations, including an over-reliance on participant motivation and decision making, along with a few misconceptions — and an “incomplete awareness of industry developments.”

The survey’s authors cite:

  • A philosophy that favors having participants make their own decisions (56%) vs. proactively placing them on a strong saving and investing path (44%) could be diminishing the appetite of some plan sponsors for adopting automatic plan features.

  • Fear of employee pushback appears to be a deterrent to adopting “automatic” features, although the survey’s authors note that participant research suggests such fears are overstated.

  • Incomplete understanding of the fiduciary protections afforded under the QDIA rules as they apply to re-enrollment, while a lack of awareness and/or insufficient knowledge is precluding others from even considering it.

  • Comfort with aggregate plan allocations may be dissuading some plan sponsors from taking action to help those whose individual asset allocations may not be appropriate for their age and circumstances.
  • Plan Goal Setting

    While plan sponsors cite retirement-related outcomes among the goals they have for their plans, they still assign the highest priority to more traditional goals — such as attracting and retaining employees or demonstrating their concern for employees. While more than one-in-three (35%) cited as a goal encouraging employees to save for retirement, and a third say they sponsor the plan in order to attract and retain employees, only half as many (17%) say they do so to ensure that their employees have sufficient income in retirement. Even among the largest plans, only 22% cited the latter factor. However, in 2013, just 12% embraced that focus, as did 14% of the largest plans.

    In terms of goals for their DC plans, the top three were “helps in retaining quality employees” (83%), “is an appropriate benefit for our organization to provide” (82%) and “demonstrates our level of caring about our employees” (80%). “Helps make sure employees have a financially secure retirement” (75%) and “helps allow employees to retire at their targeted retirement age” (66%), while on the list, were less highly ranked.

    Measuring Plan Success

    Plan success is, of course, evaluated on a myriad of factors, but the predominant factors — those rated “extremely important” or “very important” by plan sponsors — were:

  • employee/participant satisfaction level (79%)

  • investment performance (78%)

  • overall level of fees (76%)

  • plan participation rate (75%)
  • Those criteria also topped the list among the largest plan sponsors (those with more than $250 million in plan assets), but “outcomes” oriented goals, while at the bottom of their success scale as well, fared better among these plans. For example, “percentage of participants who have a well-diversified investment strategy” was a success measure for 71% of the larger plans, but just 55% of the overall group; and while 66% of the larger plans had as a success measure “percentage of participants who are on track to replace at least 80% of their final salary in retirement,” that was the case for only 53% of the broader group.

    That said, the survey did find a heightened level of responsibility for the overall financial wellness of their employees by plan sponsors: Almost 75% have a “somewhat high” to “very high” sense of responsibility — up from 59% just two years ago. The change was also notable among larger plans, where it increased from 71% to 83%.
    As for how plan design decisions are made, plan sponsors cited the following criteria:

  • meeting participants’ needs (38%)

  • cost to the organization (20%)

  • satisfying legal requirements (17%)

  • getting the maximum number of participants to experience adequate income replacement in retirement 15%)

  • the capabilities of their provider (10%)
  • Among other plan design changes:

  • 45% of all plans had adopted automatic enrollment (versus 62% of large plans)

  • 31% of all plans had implemented contribution acceleration (versus 48% of large plans)

  • 49% of all plans had target-date funds (versus 70% of large plans)

  • 46% of all plans had a QDIA (versus 66% of large plans)

  • 65% of all plans had a target-date fund as their QDIA (compared with 82% of large plans)
  • The online survey was conducted Jan. 7-18, 2015, by Mathew Greenwald & Associates, a market research firm based in Washington, D.C. It included the perspectives of 756 plan sponsors, among employers that have been in business for at least three years, offer a 401(k) or 403(b) plan to their domestic U.S. employees and have at least 10 full-time employees.

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