Plan Sponsors’ and Advisers’ Goals Sometimes Misaligned

There are several disconnects between the perceptions of defined contribution (DC) retirement plan sponsors and advisers, according to surveys by Voya Investment Management.

The study report, “Sponsor Perceptions of Retirement Plan Services: Challenges and Opportunities for Advisors,” includes findings from surveys of plan sponsors and advisers that were fielded in March and April of 2016. The surveys suggest that helping plan participants become retirement ready is an important concern for sponsors, but they place less emphasis than advisers on the means to achieve it, e.g., participant education, enrollment, communications and increasing savings rates. Plan sponsors are concerned with operating their plans and avoiding potential liabilities; the study shows if the plan is running smoothly and employees are contributing, sponsors tend to believe participants are preparing effectively for retirement.

By contrast, advisers look at potential outcomes and can see 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 agree. 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 say participants are “well prepared” for retirement.

In other findings, plan sponsors cited the challenges of meeting compliance requirements as a major concern over the next two years. Other significant challenges respondents cited included educating plan participants, increasing participant savings and managing plan expenses.

“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—target-date funds, 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 review than the annual meetings that advisers typically offer: nearly three-fourths want at least semiannual 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. Advisers believe they are effective in controlling plan costs. They also believe their fee disclosures are easy to understand, but sponsors do not agree with this perception. Sponsors tend to focus on absolute cost, which suggests they are missing the point of DOL guidance about seeking reasonable value for the fees they pay, Voya says.

Helping plan participants become retirement ready is an important concern for sponsors, but they place less emphasis on participant education, enrollment, communications and savings rates than advisers do. This represents an opportunity for advisers to add value by educating sponsors about the factors that contribute to retirement readiness, according to Voya.

"Based on the data, sponsors don't recognize all of the services that advisers provide," says De Feo. "Since we found that 95% of sponsors want to work with a retirement specialist, it is crucial that advisers highlight their skills and the value that they bring in this regard. It is also critical that advisers push for greater emphasis on participant education and communication between plan sponsors and participants to enhance the potential for participants to meet their savings goals."