Plan sponsors want their employees to achieve financial wellness and retirement security and, in recent years, have taken more steps to help them do that.
Sponsors of large plans, with more than $250 million in assets, are the innovators in this space, placing a greater importance on helping employees achieve outcome-related goals and by offering tools like automatic enrollment and automatic escalation.
In a national survey of plan sponsors, J.P. Morgan Asset Management found that although large plans have prioritized financial goals, smaller plan sponsors have a long way to go.
In January, the company polled 750 U.S. corporate plan sponsors. The majority, 75%, believe that helping employees attain a financially secure retirement is highly important, and 74% also believe that helping employees with their overall financial wellness is a priority.
J.P. Morgan conducted a similar survey in 2013. The financial wellness goal has gone up 16 percentage points since then.
Yet, traditional goals, such as retaining quality employees and demonstrating a level of caring for them, still rank well above helping employees to achieve outcome-related goals like financial security or the ability to retire at their targeted retirement age, the report found.
The survey also found that criteria used to measure outcome-related goals are not viewed as a top priority.
For example, the percentage of participants with account balances on track to replace 80% of final salary in retirement, while definitely growing in importance, is currently ranked last among a variety of plan success criteria.
To help employees reach their targeted age of retirement with enough money to replace at least 80% of their current salary, plan sponsors must structure their plans to encourage participation, clarify and reinforce the level of savings each participant will need for a secure retirement and encourage them to save toward that goal, and enable participants to invest wisely at each stage of their working lives, the report said.
The survey found that more than 60% of large plans and 45% of all plans include automatic enrollment options to drive up plan participation, and nearly one-half of large plans and one-third of all plans automatically increase contributions each year to help participants save more over time.
Target-date funds, which are managed accounts that balance a persons retirement portfolio as they get closer to retirement, have risen in popularity, with 70% of large plans and nearly 50% of all plans using TDFs as their qualified default investment alternative.
Re-enrollment, or the practice of offering automatic plan features to current employees who opted not to participate in the plan previously, has only been adopted by 7% of plans. But more than half of those surveyed had examined the benefits of a one-time re-enrollment of all participants (whether or not they chose to implement), up from 39% in 2013, the report found.
Corporations also are becoming better communicators, taking more of a targeted or personalized approach to helping employees understand how much they need to save for retirement, according to J.P. Morgan.
There are a few factors holding plan sponsors back from offering many of the tools that have been shown to increase retirement plan participation and better retirement outcomes, including a philosophy that favors having participants make their own decisions vs. proactively placing them on a strong saving and investing path, the report said.
Theres also a fear that employees will push back against automatic features, a fear that J.P. Morgan believes is overstated.
Paula Aven Gladych is a freelance writer based in Denver.
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