Investment Underperformance Is Plan Sponsors’ Top Worry

Plan sponsor investment underperformance anxiety has increased, new data show.

The Cogent Syndicated report, “Retirement Planscape: Maximizing plan provider and investment manager success in the DC retirement market,” finds that the top fear for 401(k) plan sponsors in 2022, at 57%, is about underperformance of plan investment options, up from 51% last year.

“Creating a retirement plan that is attractive to employees is even more difficult in the current volatile economic and talent environment,” Sonia Davis, senior product director at Cogent, a division of Escalent, said in a release. “In order to combat participant fears, our research supports that plan sponsors need to encourage employees to keep a long game strategy, avoid drastic withdrawals that will hinder future retirement readiness and think beyond saving by seeking help with their decumulation phase.”

Investment underperformance anxiety was highest for micro plan sponsors, which manage less than $5 million in assets, at 59%. 

For small-to-midsize plans, or those that manage $5 million to less than $100 million in assets, employees not saving enough for retirement tied underperformance anxiety as the top-cited 401(k) fear, at 48%. The report also says that cybersecurity threats and breaches are the top concern (46%) for large-to-mega plans, which manage $100 million or more in assets. Cybersecurity threats were cited by 43% of micro plans in 2022 compared with 36% last year, data show.

The Cogent report also reveals for firms to help plan sponsors. Overall, the report shows that 15% of all plan sponsors said the biggest challenge is compliance and regulations. Among micro plans, this topped the list, as it was cited by 14% of the cohort, compared with 18% of small-to-mid plans and 16% of large-to-mega plans.

Employee engagement and participation was the second biggest challenge or opportunity, across plan sizes, at 9%. Among micro plans it was cited by 8%, while 13% of small to midsize plans and 12% of large-to-mega plans cited it, the report shows.

“For plan providers, understanding the most pressing issues their customers face and demonstrating capabilities that provide solutions will strengthen client loyalty and pave the path to new business growth,” Davis said in the release.

The report included 28 defined contribution plan providers, 43 investment managers and eight digital recordkeepers.   

Cogent Syndicated, a division of Escalent, conducted the online survey of 1,267 401(k) plan sponsors from February 11 to March 8 of this year.