59 percent of sponsors subscribe to the “hands-off” approach, letting employees make their own choices; 41 percent (more likely to be among sponsors of larger plans) take a more proactive approach in getting employees onto the right savings and investing path. (Photo: Shutterstock)
Plan sponsors may feel responsibility for helping their employees achieve financial wellness, but the “hands-off” approach many take to defined contribution retirement plans is not necessarily helpful in meeting their goals.
So finds a survey from J.P. Morgan, which also reports that despite the fact that 74 percent of plan sponsors indicate that they feel a “very high” or “somewhat high” commitment to employees' financial well-being—a percentage that has increased by 25 percent since the first survey in 2013—their current actions aren't achieving their desired objectives.
More than 80 percent of sponsors say that their reasons for offering a DC plan include “showing employees they care, overall employee compensation levels, employee retention and recruitment, and the prevalence of DC plans as a company benefit.” Other reasons, cited to a lesser extent, include employee morale and retirement financial security.
But good intentions aren't getting sponsors where they want to go—or employees either, for that matter.
There's a substantial disconnect between those reasons' importance to the organization and how effective sponsors believe they are in achieving their goals—most by a factor of 10 percent or even double that.
In fact, 59 percent of sponsors subscribe to the “hands-off” approach, letting employees make their own choices; 41 percent (more likely to be among sponsors of larger plans) take a more proactive approach in getting employees onto the right savings and investing path.
And those proactive sponsors are more likely to adopt best practices in the ways they woo employees to participate, help them to contribute more and focus their employee communications on the subject.
In addition, these days plan sponsors are more likely to espouse retirement income solutions as part of their plans, seeing decumulation as a plan responsibility, with 54 percent believing that sponsors are obliged to an extent to offer employees retirement income solutions.
That's a trend that's likely to continue, according to the report, which says in part, “Given the growing number of participants anticipated to soon start entering retirement based on demographic trends, we expect this to be an exciting area of development and will continue to evaluate it in future research.”
Proactive sponsors are also more likely to believe their plans are successfully hitting the goals of helping participants achieve a financially secure retirement and retire at their target ages.
According to the report, “[T]here is a clear disconnect between the large number of plan sponsors who feel a high level of responsibility for employee overall financial wellness and the much lower number proactively positioning participants for saving and investing success.” With more proactive sponsors doing better at achieving their goals, it appears that the future holds a more active role for sponsors in taking a “hands-on” approach to their plans.
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
