There Is Room to Improve Recordkeeper Websites for Plan Sponsors

Seventy-six percent of plan sponsors interviewed by Corporate Insight say they view the plan sponsor website either as very or extremely important in relation to their responsibilities to the plan.

While defined contribution (DC) plan fees are plan sponsors’ top concern when selecting a recordkeeper, they are also greatly concerned about the websites they offer for both sponsors and participants, according to a survey by Corporate Insight.

“At the end of the day, more traditional topics such as fees and investment lineup accommodation will take precedence in these discussions, but in an ever-evolving industry that is undergoing consolidation and increasing parity in terms of fees and investment lineups, digital capabilities will increasingly make or break recordkeepers’ business,” Corporate Insight says.

A survey of 338 plan sponsors that the firm conducted in June found that 91% of employers say their website experience is either equally or more important than their participants’ experience. Sixty-eight percent of sponsors say they log onto the plan sponsor website at least once a week, and 18% do so daily, up from 10% in 2017. Seventy-six percent say they view the plan sponsor website either as very or extremely important in relation to their responsibilities to the plan.

Eighty-eight percent of sponsors say they are either satisfied or very satisfied with the sponsor website from their recordkeeper. However, only 31% said they are very satisfied, indicating, according to Corporate Insight, that there is room for improvement.

As to what, specifically, sponsors are looking for, Andrew Way, director of research, annuity, life and retirement at Corporate Insight, tells PLANSPONSOR, “first and foremost is website security, followed by plan level information and plan administrative capabilities, such as enrolling, updating participant data, completing requests such as distributions, and reporting functionality.”

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A few recordkeepers have created intuitive plan health dashboards, but five years ago, sponsors would have to go through laborious reporting procedures to extract each data point, Way says. Recordkeepers have put far more work into updating participant websites than they have sponsor websites, he says. “Many still have antiquated designs and user interfaces,” Way says. “Sponsors hold these websites up to the high quality service they get from non-financial websites, such as Google. If they don’t offer an intuitive plan health dashboard or haven’t updated it in a few years, they need to do so.”

Plan Sponsors Should Watch for Unintended Consequences of Defaults

A research paper warns that changing to a default fund that is preferred by more employees may lead people to be less well-prepared for retirement.

According to “Do Defaults Have Spillover Effects? The Effect of the Default Asset on Retirement Plan Contributions,” a research paper published by the National Bureau for Economic Research (NBER), when the Federal Thrift Savings Plan (TSP) switched to a lifecycle fund for a government securities fund as the default investment for participants who did not actively make a choice, participants were saving less.

The sample consists of employees employed at the Office of Personnel Management (OPM) both before and after the change in the default asset allocation. The researchers contend that the lifecycle fund may be considered a more appropriate default in that the allocation is likely preferable to a higher percentage of employees as compared to the conservative fund which may not be well-suited for long-term wealth accumulation.

The findings suggest that employees approach asset and deferral decisions jointly. They found those who were defaulted into the lifecycle fund remained passive and did not increase their deferral rates to maximize the employer match. “This joint decision-making combined with a better-suited default fund may partly explain why employees fail to maximize their employer matching contributions,” according to the white paper.

The paper warns that changing to a default fund that is preferred by more employees may lead people to be less well-prepared for retirement.

“This paper contributes to the growing literature on the unintended consequences of defaults,” the paper says. The researchers point to a previous study which found, while automatic enrollment dramatically increases participation in defined contribution (DC) plans, it comes at the cost of higher persistence by employees at the default contribution rate, which are often set at a rate that does not maximize the match from the employer and may not maintain an adequate level of consumption into retirement. Another study found that the introduction of a lifecycle fund as the default has led some employees to hold portfolios that mix the lifecycle fund with other assets, though lifecycle funds are intended to be standalone portfolios.

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