Participant feedback can offer valuable insight into what employees want from their retirement benefits. But translating those preferences into plan decisions requires plan sponsors and fiduciaries to first understand what kind of decision they’re making.
Ask retirement plan participants what they want from their benefits and they’ll probably have plenty to say. More investment choices. Greater access to their savings. Features that help address financial needs long before retirement.
But how much weight should plan sponsors and fiduciaries give those preferences, particularly when they appear to conflict with the long-term purpose of retirement savings?
That question is more complicated than it first appears, according to Christopher Carosa in a recent Fiduciary News article. Before deciding how much influence participant preferences should have, he argued, plan sponsors need to identify who is actually making the decision and in what capacity.
Employers generally make decisions about whether to offer a retirement plan and how to design it in their role as the plan sponsor, or “settlor.” Those decisions can reflect business considerations such as recruiting and retention, cost, and workforce needs.
Fiduciary decisions are different. Once a plan is established, ERISA imposes fiduciary responsibilities related to administering the plan and managing its assets. Conflating the two can lead employers to apply fiduciary standards to decisions that actually belong to the employer as settlor.
Things like participant surveys can still provide useful information. They can reveal financial pressures facing employees, dissatisfaction with existing benefits, and differences among groups within the workforce. But listening to employees doesn’t require an employer to adopt what they ask for.
Plan design decisions may require employers to weigh participant preferences alongside cost, workforce objectives, administrative considerations, and the reasons the organization offers the benefit in the first place.
Even within the fiduciary context, participant needs aren’t uniform. Younger workers, employees approaching retirement, and participants facing different financial circumstances typically have very different priorities. A fiduciary’s duty of impartiality can require considering the interests of different groups of beneficiaries rather than simply following the preference expressed by the largest group.
Mr. Carosa also challenged the assumption that participants always favor immediate access while retirement professionals advocate for long-term security. Target-date funds offer one example. Participants approaching retirement may want greater protection from market losses, while investment professionals may believe they need continued exposure to assets with greater return potential. In that case, the usual assumptions about what participants “want” and what professionals believe they “need” are reversed.
As Carosa explained, participant feedback can inform a decision without determining its outcome.
For plan sponsors and fiduciaries, the first question is what kind of decision is being made. Is the employer deciding what benefit to offer or establishing the terms of the plan? Or is a fiduciary exercising discretion in administering the plan or its assets? Only then can participant preferences be considered in the proper context.
For retirement plan advisors, the article also offers a useful reminder about participant surveys and other employee feedback. Those findings can reveal competing needs across a workforce and challenge assumptions about what participants value. But they’re one source of information in a broader decision-making process, not a substitute for determining who has authority to make the decision and what responsibilities apply.
