Quarterly Statements Useful in Enhancing Participant Retirement Readiness

It’s no secret that many, if not most, retirement plan participants do not read, or do not fully understand, the many communications sent to them. However, the one they are most likely to pay attention to is their quarterly account statement.

A 2016 syndicated study by Corporate Insight found that of the nearly 1,500 respondents, 82% said access to their most recent quarterly statement was “very” or “extremely important,” and 48% had viewed or downloaded statements at some point in the previous twelve months.

The quarterly statement is a tool for getting plan participants engaged in their retirement readiness. However, not all providers are including the best information to get participants engaged.

For Corporate Insight’s latest Retirement Plan Monitor Report, the firm examined the most up-to-date quarterly statements available on the participant websites of its coverage firms and found every firm makes statement archives findable from links within the main menu—what it says is a best practice. All recordkeepers covered by the report provide gain/loss information and contributions/additions information on quarterly statements, but Corporate Insight says plan participants should be able to see other details about what drives the change in their account balance. Eighty-five percent of recordkeepers supplement this information with investment-level summaries, and 54% provide source-level summaries.

Corporate Insight suggests that statements should also show how dividends and capital gains (62% of recordkeepers provide this information), transfers/exchanges (46%) and fees/expenses (85%) have impacted the plan balance. The firm notes that in recent years, the number of lawsuits regarding fiduciary responsibility has rapidly increased, many of which relate to excessive fees. “Clearly, given the current cost-sensitive environment of the defined contribution industry, it is imperative that firms clearly highlight both recordkeeping and investment fees on the participant website and quarterly statement. Among the firms in this report, 85% list plan fee and expense details on the quarterly statement, either within the quarterly activity summaries or within dedicated sections. However, we believe dedicated sections are the best way to clarify this information, and 62% of the firms in this report offer such sections,” Corporate Insight said in its report.

Aside from understanding what sources affect their account balance, retirement plan participants could use reminders of what they are contributing and what their employers match. Only 31% of firms in the report list employees’ current contribution rate on quarterly statements. Most firms (85%) list the contribution amount by source for the statement period and for additional timeframes (77%). Corporate Insight says employer matching information could provide helpful context for participants who use quarterly statements to assess whether they should make changes to their portfolios, but it found only two recordkeepers integrate this information within statements.

According to Corporate Insight, when communicated clearly and accompanied by methodology and assumption information, retirement readiness data enhances quarterly participant statements. Many in the retirement industry believe retirement income projections on statements would help participants in their savings and investing decisions as well as with planning for retirement. The Department of Labor’s Employee Benefits Security Administration’s (EBSA) in 2013 shared advanced notice of proposed rulemaking on the subject—followed by a comment period that saw some industry practitioners share concerns that the financial assumptions and calculation tools underlying such disclosures must be customizable enough to give participants an accurate income projection. Others said they were concerned that plan fiduciaries could be found to be on the hook for inaccurate—and especially over-generous—projections of income. No regulations have been issued regarding the provision of lifetime income projections on statements, and efforts in Congress also have not panned out.

Corporate Insight found that only 38% of recordkeepers’ statements include retirement readiness information. Among these firms, the selection of metrics varies greatly, with some listing only the monthly income projection, and one including both the monthly and annual retirement income projections, a retirement income goal and a gap analysis along with a forecast-style infographic illustrating the participants’ progress toward their savings goals. Since it last reported on statements in 2018, three recordkeepers have actually removed retirement readiness analysis from statements.

These are all items retirement plan sponsors can ask recordkeepers if they will provide.