UpFront | Published in March 2017

Plan Sponsors’ and Advisers’ Goals Sometimes Misaligned

By Rebecca Moore | March 2017
Art by Sarah Mazzetti
There are several disconnects between the perceptions of defined contribution (DC) retirement plan sponsors and those of DC retirement plan advisers, according to surveys by Voya Investment Management.
The report “Sponsor Perceptions of Retirement Plan Services: Challenges and Opportunities for Advisors” relates findings from plan sponsor and adviser surveys fielded last March and April, suggesting that helping plan participants become retirement ready is an important concern for sponsors, however, compared with advisers, they place less emphasis on how to aid the process—e.g., on participant education, enrollment, communications and increasing savings rates. Plan sponsors are more likely concerned with operating their plans and avoiding potential liabilities. If the plan is running smoothly and participants are contributing, the sponsor tends to believe they are preparing effectively for retirement, the study shows.
By contrast, advisers look at potential outcomes and can see that participants generally are not saving enough or investing wisely enough to provide for their retirement income needs. Nearly half of advisers say participants are “poorly prepared” for retirement, whereas only one in six plan sponsors hold that belief. Seven in 10 sponsors say participants are “somewhat prepared” to retire, and four in 10 advisers concur. Yet only one in six sponsors and one in 10 advisers call participants “well-prepared” for retirement.
“Our research found plan sponsors were most concerned with plan fees, the retirement readiness of participants and investment performance,” says Michael De Feo, head of retirement and investment only, at Voya Investment Management. “While advisers agreed that plan fees were a top priority, they also thought sponsors were more concerned with managing plan complexity and less concerned about participants’ retirement readiness.”
According to the study, plan sponsors and advisers generally agree that offering a tiered investment menu—e.g., target-date funds (TDFs), core funds and a brokerage/mutual fund window—for different types of plan participants can result in better investment outcomes. Investment performance is the leading factor driving change of plan investment options, followed by the availability of lower-cost options. Sponsors and advisers closely agree that most participants are best served by investing in target-date funds rather than selecting individual funds or plan choices. Sponsors want more frequent plan reviews than the annual meetings that advisers typically offer: Nearly three-fourths want at least semi-annual reviews, and half want quarterly reviews.
The key regulatory concern for sponsors is ensuring reasonable plan fees and expenses, followed by complying with Department of Labor (DOL) fiduciary standards.