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trendspotting | PLANADVISER September/October 2017

Getting Retirement Ready

Sponsors' views toward 401(k)s are changing

By Lee Barney editors@assetinternational.com | September/October 2017

Defined contribution (DC) plan sponsors are beginning to understand the importance of running their plans in a robust manner to get people prepared to retire with adequate income, J.P. Morgan says in a new report, “Progress Never Stops: How plan sponsors are sharpening their focus to strengthen plans and improve outcomes.”

When defined contribution plans were first introduced 30 years ago, J.P. Morgan says, sponsors simply viewed them as vehicles to attract and retain workers. Today, plan sponsors increasingly feel responsible for getting their workers retirement ready, the investment firm says.

According to the report, 85% of large plans and 65% of plans overall automatically enroll their workers. Seventy-seven percent of large plans automatically escalate deferral rates, as do 50% of plans of all sizes. Eighty percent of large plans offer target-date funds (TDFs) on their investment menus, as do 62% of all plans. Ninety-three percent of large plans with qualified default investment alternatives (QDIAs) use TDFs in that role, as do 78% of all plans with QDIAs. However, only 20% of large plans conduct re-enrollments, and a mere 13% of plans of all sizes do so.

Eighty-two percent of plan sponsors today say they feel a “very high” or “somewhat high” sense of responsibility for their employees’ financial wellness, up from 59% in 2013. Eighty-two percent of employers also view their retirement plan as a tool to ensure employees have a financially secure retirement, up from 77% in 2013.

Further, 61% of employers now analyze the percentage of their employees on track to replace 80% or more of their final salary in retirement, up from 44% in 2013. In addition, 23% of employers say that getting the maximum number of participants to retire with adequate income is important, more than double the percentage that said so in 2013.              

J.P. Morgan says there are areas where plan sponsors can improve their plans. While 54% of sponsors believe their participants should be saving 10% of their salary or more, only 23% say their average savings rate is at that level. Only 56% of sponsors are confident participants have invested their assets appropriately.

How Plan Sponsors Foster Retirement Readiness

Use automatic
enrollment
Auto-escalate
deferral rates
Offer targetdate
funds
Use TDFs as
the QDIA
Conduct
re-enrollments
65%
50%
62%
78%
13%
Source: J.P. Morgan