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DC Plan Sponsors are Focusing on Outcomes

DC Plan Sponsors - JP Morgan Research

DC Plan Sponsors are Focusing on Outcomes – Sponsors’ Mindset is Shifting, But There’s More Work to Do. Recent research from J.P. Morgan Asset Management found that plan sponsors’ mindset is changing when it comes to defined contribution plans. Instead of thinking of them as just another benefit to attract and retain talent, sponsors see DC plans as a way to help more American workers achieve financially dignified retirements.

This evolution in sponsor thinking used to be more prevalent in large plans — today, it’s apparent across plans of all sizes. In other words, growing numbers of sponsors feel responsible for improving retirement outcomes and helping their employees achieve a greater sense of financial well being.

And they aren’t just talking the talk. Sponsors are taking action in myriad ways, including putting more emphasis on making sure their employees have sufficient income in retirement (23% of DC plans J.P. Morgan surveyed are focused on this — double the number from 2013), and strengthening their plans to proactively put participants on track to solid savings and investing practices (55% of plans).

Specifically, plan sponsors are:

  • “implementing automatic enrollment: 85% of large plans; 64% of all plans
  • implementing automatic contribution escalation: 77% of large plans; half of all plans
  • including target date funds (TDFs) in investment lineups: 80% of large plans; 62% of all plans
  • choosing TDFs as their qualified default investment alternative (QDIA): 93% of large plans with QDIAs; 78% of all plans with QDIAs
  • conducting/planning to conduct a plan re-enrollment (albeit at a slower pace): 20% of large plans; 13% of all plans”

These are all positive ways plan sponsors are helping improve retirement readiness and outcomes, and it’s encouraging to see them doing so in plans of all sizes. However, J.P. Morgan cautions against complacency. It’s no secret, Americans are under-saved for retirement, and many plan sponsors (56%) are concerned their participants don’t have the right asset allocation for their DC plan investments.

What’s more, J.P. Morgan found that 43% of the plan decision makers it surveyed in 2017 didn’t realize they were plan fiduciaries — unchanged from the 2015 results, and a cause for concern, indeed.

An interesting revelation from the survey is that many plan sponsors cited a fear of participant push back on automatic enrollment (25%), automatic contribution escalation (20%), and re-enrollment (24%) as key reasons why they’ve delayed or decided against putting these features in place. However, based on participants’ responses, these fears may be largely unfounded. A majority of participants are neutral on or in favor of auto enrollment (75%), auto escalation (74%) and re-enrollment (82%).

As a plan sponsor, it’s important to stay proactively engaged with participants and develop a keen understanding of their behaviors, goals, and desires. However, it’s just as important to ensure participants are actively engaged in preparing for retirement and taking full advantage of the plan’s benefits.

Additionally, plan sponsors should make sure they understand their fiduciary responsibilities and keep up to date on related regulatory requirements, as well as stay on top of plan innovations. They should also set outcome-oriented goals for the plan as benchmarks of success.

The takeaway? DC plan sponsors’ mindset is shifting in a positive direction, but there’s still some more work to do.

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