Administration July 26, 2017

Plan Sponsors Using Plan Design and Other Tools to Increase Employee Engagement

“Participant engagement growth has also been driven in part by employers making education more accessible with onsite meetings, webcasts and personal consultations,” Bank of America Merrill Lynch says.
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Employers are making it easier for employees to take more control of their finances by continuing to simplify retirement plan design and expanding the savings solutions they offer to include Roth 401(k)s and health savings accounts (HSAs), according to the latest Bank of America Merrill Lynch Plan Wellness Scorecard. 

“Backed by the financial wellness solutions of Bank of America Merrill Lynch, employers are able to give employees access to the financial help they want and establish a culture of financial wellness. This engagement growth has also been driven in part by employers making education more accessible with onsite meetings, webcasts and personal consultations,” the company says. 

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Among Bank of America Merrill Lynch’s proprietary 401(k) business, the last year has seen a 6% increase in new enrollments, a 17% increase in plan assets, a 20% increase in contributions and an 18% increase in deferral rate changes. The majority of employees in every age group actively contribute to their 401(k) accounts, with younger employees slightly more likely to contribute—82% of Millennials made a contribution, as did 77% of Gen X and 75% of Baby Boomers. 

Nearly two-thirds of employees say their employer has been at least somewhat influential in getting them to save for retirement. Employers that are looking to help their employees save more for retirement and establish a culture of wellness in the workplace are embracing simplified plan features. Auto-increase has become very popular, showing a 24% year-over-year adoption growth rate and a 172% increase since 2012. 

The Scorecard finds that the higher the automatic enrollment default rate, the higher the levels of employee participation in their 401(k) plan. The overall participation rate at a 3% auto-enrollment rate is 80%, while the participation rate at a 6% default rate is 83%. 

NEXT: Increased mobile usage, Roth accounts and HSAs

In addition to simplified plan design, website and mobile access to Bank of America Merrill Lynch’s Benefits OnLine has seen increased usage. In the past year, there has been a 10% increase in website visits and a 14% increase in the use of mobile sessions. And, when employees access their account, they are doing more than just checking balances: 16% are using express enrollment for voluntary enrollment, 13% are using digital to make beneficiary changes, and 8% are using it for contribution rate changes.

Among the 57% of plans that offer Roth accounts, Roth contributions increased 25% versus 16% for pre-tax contributions. In addition, the number of employees contributing to Roth accounts increased by 31%.

Beyond looking just at saving for retirement, employees are also looking for ways to save for their health care expenses, today and in the future. Employees are increasingly using HSAs to put aside pre-tax dollars to help cover their medical costs. The Scorecard found a 21% increase in the number of employees contributing to HSAs and a 36% increase in HSA balances.

In addition, 70% of contributions to HSAs are bring used during the year, leaving 30% to remain in the accounts for future health care expenses.

The latest Plan Wellness Scorecard can be downloaded from http://www.benefitplans.baml.com/IR/pages/digitalscorecard.aspx.
Investing July 26, 2017

DC Plan Menus Evolve to Meet Participant Demands

According to Manning and Napier survey data, as many as 27% of participants say they have actually proactively opted out of a TDF auto-enrollment at least once, because they feel they have the ability to make decisions for themselves.

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Shelby George, senior vice president for adviser services with Manning and Napier, kicked off a recent webcast by observing the incredible growth that has occurred since the mid-1990s in the target-date fund (TDF) marketplace.

“In 1994, when TDFs began, there were literally just one or two products on the market,” she noted. “Today there are some 60 TDF series available for plan participants, on our count, and the number continues to grow. This growth has been incredibly important in helping non-experts invest in much more effective and rational ways.”

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Since the mid-90s, the industry has seen great improvement in the due diligence support wrapped around TDF products, particularly on the “glide path evaluation and decision question.”

“The added sophistication has been really important for helping plan sponsors feel confident and participants get on a much better track,” George said. “We also know today that there are still some 40% of people who say they prefer to manage their money on their own outside of a TDF, so it’s also important to keep these folks in mind when creating the menu. These do-it-myself participants are engaged, and they are demanding tools and support as well.”

According to Manning and Napier survey data, as many as 27% of participants say they have actually proactively opted out of a TDF auto-enrollment at least once, because they feel they have the ability to make decisions for themselves.

“Opportunity has expanded for advisers serving as investment advice fiduciaries, alongside this trend,” George added. “The majority are acting in a 3(21) capacity today, and as we have more and more advisers take on fiduciary responsibility, we see sponsors engaging advisers to do due diligence on both TDFs and single-asset-class holdings.” The result is streamlined and simplified investment menus.

Chris McAvoy, product Manager for multi-asset class solutions, said he is encouraged to see advisers come to understand the critical importance of offering an appropriate qualified default investment alternative (QDIA) according to the unique needs of any given plan. Given his role at Manning and Napier, it’s no surprise he argued that automatically diversified and rebalanced investment funds will generally serve participants best.

NEXT: 20 funds or so remains the average 

“The current menu today stands around 20 funds, on average, and that has been stable. So it remains very confusing for the typical participant to understand how to invest their money across the menu,” McAvoy warned. “As we move forward, the adviser’s role can be to understand how the environment will impact the way we create plan lineups and to think about diversification and new opportunities for growth, alongside capital preservation. We have to understand that the expectations looking forward are not great, and people have to adjust their behavior accordingly.”

Craig Abbott, vice president and retirement plan consultant, closed the webinar by observing this is a unique time for designing and implementing defined contribution plan investment menus.

“This is a unique and exciting time for menu design … there are more tools and resources available now than ever before,” he said. “Financial wellness programs have already helped a lot of participants become more engaged with their finances, both on the investment side and beyond. Education materials are getting more robust, helping participants understand and identify appropriate approaches.”

He pointed out that, for a lot of advisers, a big part of their value proposition remains sitting down one-on-one with participants. “But there are more technology offerings available now to make this work much more practical and efficient—the robo-advisers and managed accounts, etc. These are helping plans go beyond what a typical TDF can do, and that is encouraging,” he explained.

Abbott concluded that “one other clear trend” is the shift away from “an exclusive focus on growing the plans and maximizing accumulation. There is much more of a focus on the spending phase and how we can help retirees address the new market realities of living in retirement. How can we make DC-based retirements possible over timespans of 20 or 30 years? We need to expand the number of retirement income tools we offer participants.”

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