Plan Sponsors, Providers and Participants Speak of Different Perceptions, Priorities

Research reveals that less than half of sponsors believe that employees are solely responsible for their own retirement savings and investing decisions, but greater than three-quarters of participants feel that they have sole responsibility for these decisions.

The latest research from Cerulli Associates identifies topics where there are, as researchers put it, “surprisingly different perspectives” among key defined contribution (DC) plan industry stakeholders; Cerulli believes that these areas of misalignment may offer opportunities for plan providers, advisers, and consultants to drive new solutions.

As Jessica Sclafani, director at Cerulli, explains, researchers contrasted survey data of 401(k) plan sponsors’ stated priorities with recordkeepers’ perceptions of plan sponsor priorities. The comparison clearly shows that plan sponsors and recordkeepers might not be on the same page in thinking about topics related to improving the quality of the investment lineup, minimizing fiduciary risk while avoiding litigation, and reducing plan administration costs.

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For example, data indicates that recordkeepers may be underestimating the importance plan sponsors assign to “improving the quality of the investment lineup.” While 27% of 401(k) plan sponsors identify improving the quality of the investment lineup as a top priority for the 2018 plan year, only 4% of recordkeepers identify this topic as a top priority for plan sponsors.

“Given the increased use of intermediaries in the DC plan market, recordkeepers are generally not as influential as they once were in shaping the investment menu,” Cerulli posits. “However, this data implies that recordkeepers, at a minimum, should ask their 401(k) plan sponsor clients how they view the plan’s current investment lineup and potentially offer data and anecdotal insights into what other plan sponsor clients are considering as it relates to the plan menu.”

When examining how 401(k) plan sponsors and recordkeepers evaluate the success of a plan, Cerulli finds that they both look at the same metrics; however, there are noticeable points of divergence in how these metrics are stacked against one another.

“As another example, the research reveals that less than half of sponsors believe that employees are solely responsible for their own retirement savings and investing decisions, but greater than three-quarters of participants feel that they have sole responsibility for these decisions,” Sclafani notes.

As the Cerulli reporting lays out, reducing plan administration costs is a priority across plans of all sizes. This contrasts with the topic of “minimizing fiduciary risk/avoiding litigation,” which 13% of micro plans versus 20% of mega plans identified as a top issue, and is apparently more of a mega market concern.

The research suggests some plan sponsors “may need to pay greater attention to metrics that relate to decumulation when gauging plan success.” A potential obstacle here is the multiple assumptions that income-oriented measurements generally involve and their associated challenges.

According to Cerulli, the most commonly used metrics to benchmark plan success—namely, participation rate, average contribution rate, and percentage of participants taking full advantage of company match—are associated primarily with the accumulation of savings. Metrics associated with the decumulation of savings, such as retirement income replacement ratio (26%) and average projected shortfall or surplus (25%), rank noticeably lower on the list of 401(k) plan sponsors’ considerations.

“Again, some plan sponsors may need to adjust their definitions of plan success and pay greater attention to metrics that relate to the decumulation phase,” Sclafani says.

Another potential obstacle is explained as follows: “Automatic enrollment and automatic escalation simplify participant decisionmaking and can help employees overcome years of nonparticipation in 401(k) plans and failing to increase contributions as their pay levels rise. However, the employees who need to save the most are often most resistant to automatic enrollment and automatic escalation features.”

Indeed, the data shows participants with fewer investable assets are more likely than others to oppose automatic enrollment. Plan participants in favor of automatic enrollment are naturally far more likely to save at least 6% to 10% or more of their pay for retirement.

In many cases, these resistant individuals are against automated features on principle, Cerulli finds, identifying most closely with the statement, “It’s not the employer’s right to decide.” Fortunate for plan sponsors and recordkeepers, evidence also shows targeted education programs about the impact of automatic enrollment and automatic escalation are generally quite effective, especially when they break down in dollar figures how much asset accumulation individuals may be missing out on.

“Amount of in-service withdrawals taken” ranks fifth among recordkeepers and eighth among plan sponsors. Cerulli argues this data indicates that recordkeepers place more emphasis on monitoring leakage from the plan, such as loans, hardships, and other in-service distributions, compared with plan sponsors. While plan loans and leakage can be sensitive subjects for plan sponsors to broach with their participant population, there may be opportunity for recordkeepers to emphasize to plan sponsors the potential impacts of plan leakage and suggest campaigns to address the issue. That said, Cerulli also points out that “average loan balance” is ranked last by recordkeepers, while plan sponsors rank it fourth, “perhaps showing that plan sponsors are more keenly focused on loans, as opposed to talking about plan leakage in broader terms.”

These findings are taken from the first quarter 2018 issue of The Cerulli Edge – U.S. Retirement Edition; much more data is available. Information on how to obtain Cerulli research is available here.

19% of Working Americans Are Not Saving Anything

Expenses are cited as the main reason why they are failing to save anything, Bankrate.com found in a survey

Nearly 20% of working Americans are not saving any money, according to a Bankrate.com survey. The number one reason they gave for not saving was having too many expenses, cited by 39%. Sixteen percent said their job isn’t good enough, 16% said they haven’t gotten around to it, and 13% said debt was preventing them from saving.

Among those who are saving, 27% say they are saving more than 10% of their salary, and 16% are saving more than 15%.

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“With a steady, significant share of the working population saving nothing or relatively little, it’s virtually guaranteed they’ll be unable to afford a modest emergency expense or finance retirement,” says Mark Hamrick, senior economist at Bankrate.com. “That amounts to a financial fail. With higher incomes coming in because of the tax cut and rising wages, there are ready sources to help fund savings.”

Twenty percent of those earning more than $75,000 a year are saving more than 15%. Twenty-three percent of younger Millennials, those between the ages of 18 and 27, are saving more than 15% of their incomes, and 27% of older Baby Boomers are saving more than 15% of their incomes.

The same can be said for 21% of college grads. By comparison, only 18% of those with some college education are saving 15% or more of their income, and just 9% of those with a high school diploma or some high school education.

Twenty percent of Millennials said their job isn’t good enough, and 27% of the Silent Generation, those 73 and older, said they don’t need to save more.

Those citing debt as the reason for failing to save more often tended to be those with higher incomes, including 17% of those making $75,000 or more. Twenty-seven percent of Republicans, 13% of Democrats and 10% of Independents blamed debt as an obstacle to saving.

SSRS conducted the land line and cell phone survey among 1,010 people for Bankrate.com between Feb. 28 and March 4. Of this group, 501 are employed.

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