DO YOUR PARTICIPANTS KNOW how great their retirement plan is
and how much work you put into making it so? Or would they be swayed by bad
press about retirement plans or by attorney advertisements?
While it’s important that participants trust their retirement
plan recordkeepers, they should also trust that plan sponsors have their best
interests in mind.
Tout Your Plan Design
Natixis’ 2019 Defined Contribution Survey found that across
all generations, the top reason employees said they participate in a company-sponsored
defined contribution (DC) plan is a company match, which was cited by 56% of
the respondents overall. The main reason American workers opt out of
participating in their company-sponsored DC plan is that their employer does
not offer a match or the match isn’t big enough (34%). A bigger company match
would incentivize the majority of American workers (57%) to save more into
“We survey plan participants every year, and, consistently,
the most valued plan feature is the company match,” says Edward Farrington,
head of retirement at Natixis. “We understand not all plan sponsors are in a
position to contribute to the plan, but, if they are, providing a match creates
participation and trust in the plan and plan sponsor more than anything.”
If plan sponsors currently provide a match, Farrington
suggests they consider increasing it. “That creates a tremendous amount of goodwill
with participants,” he says. “It also creates better results for participants.
We all know if they can get up to a 10% or higher savings rate, including the
company match, and save that for long enough, they will be able to have
sufficient retirement income.”
Farrington says plan sponsors should communicate that they
are offering a match and explain “the power of it.”
One in five (21%) workers surveyed by Natixis said if they
had a way to automatically increase their contribution level each year (i.e.,
automatic escalation) it would motivate them to save more. Three-fourths (76%)
of American workers said they would be more inclined to save if they could
invest in the plan on day one of employment.
Although it takes time to play out, automatic enrollment and
auto-escalation help create better participant behaviors and outcomes, and
participants are grateful for them over time, Farrington says. “Starting
savings early, maximizing the company match, getting the best fund performance,
all of this helps participants. To the extent plan sponsors help them with
these things, they appreciate it,” he says.
Farrington says plan sponsors can look into plan design more
deeply to find hidden gems. Natixis research found that seven in 10 Millennials
said they would invest in their company DC plan for the first time or increase
their savings if they had access to responsible investments. Farrington says
this is something to think about as Millennials are the largest percentage of
the overall workforce. “There is evidence it could actually increase better
behaviors without plan sponsors having to spend more money on the plan,” he
says. “There are many strategies to integrate ESG [environmental, social and
governance] investments into plans and they all can be done while meeting
Fifteen percent of employees surveyed by Natixis said
getting access to professional investment advice in their plan would
incentivize them to save more. Nearly two-thirds (64%) of employees who
participate in a company-sponsored DC plan said they want more education from
their employer about their plan.
More personalization helps create positive participant
engagement and action in plans, says Ben Lewis, senior managing director
overseeing institutional sales, consultant relations and health care at TIAA.
This can be done with offering one-on-one advice and
personalized projections on statements. “They’re interested in what they should
be on track for and how they compare to peers,” he says.
“Participants know they are saving for retirement but don’t
know what they should be on track to save,” Lewis adds. “Plan sponsors should
do what they can to help participants know that and provide a path to do so—the
steps to take to achieve the desired outcome, which is lifetime income. This
builds happiness with the plan, success for participants and trust in plan
But personalization also is about “digging in and evaluating
how different employee segments are doing—by age, gender or behaviors such as
not optimizing contributions,” Lewis says. “We often help participants who are
not optimizing the employer match by showing them how that can help with
lifetime income and how it affects their paycheck today.”
He says it’s important to use personalized information for
different employee segments. It’s also important to make information available
through different channels. “We’ve seen a 150% increase in mobile use during
the pandemic,” Lewis says.
Investment committees spend a tremendous amount of time
selecting and monitoring DC plan investment menus, Farrington notes. “They take
this responsibility seriously. Maybe it’s something plan sponsors could
communicate more: the rigor that goes into evaluating and making sure costs are
low,” he says. Farrington adds that plan sponsors should communicate to
employees the benefit of participating in the plan versus buying investments on
their own—the economies of scale and the institutional pricing, for example. “I
think that would be greatly appreciated by plan participants and is probably
undervalued by them now,” he says.
Farrington adds that it is also important to remind
participants that when they see investment returns on their statements, they
are seeing performance that is net of fees. “It’s good to know what you are
paying for investments, but you should also understand that some that are more
expensive may be performing well enough to earn that fee and then some,” he
“We haven’t seen plan sponsors offering information to participants
about the processes they use” for investment selection and plan design
decisions, Lewis says. “We believe making information available for people who
want it is important, but plan sponsors should balance sharing information and
not overwhelming participants. Getting participants to engage on information is
He says that’s why plan defaults are so important and points
out that newly introduced legislation that the industry is calling the “SECURE
Act 2.0” would make automatic features mandatory for new plans.
“One thing we really worked with our plan sponsors on is
encouraging employees to engage with us for advice, whether by phone, the web
or face-to-face,” Lewis says. “They should connect with us to ask questions.”
He says the majority of participants are not going to seek
information to understand things such as fees, but plan sponsors should make
sure they are highlighting the different ways plan participants can find
information and get questions answered.
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