Advisers Can Leverage Plan Sponsor Openness to Plan, Investment Changes, Research Finds

Retirement plan advisers may find success with plan sponsors by leaning into plan design and investment menu changes that have grown in interest over the past decade, according to new research from J.P. Morgan Asset Management.

Employers have experienced a growing sense of responsibility for employees’ financial wellness in the past 10 years, according to the J.P. Morgan Asset Management 2023 Defined Contribution Plan Sponsor Survey. The asset manager’s research team found that 85% of plan sponsors feel a strong sense of responsibility for employee financial wellness, up from 59% in 2013; meanwhile, 61% of respondents have used proactive plan design approaches to support achieving greater retirement security for participants.  

The results show opportunities for advisers to engage with plan sponsors in areas of financial wellness, plan reenrollment, and retirement income, Alexandra Nobile, vice president, retirement insights, wrote via email.  

“Financial wellness programs remain challenging to define, but in our own related data, we’ve found a strong link between participants’ retirement outcomes and their overall financial well-being,” Nobile wrote. “It’s important for plan sponsors to work with their advisers to determine what additional support may be needed outside of the retirement plans and offer support for those who need it, whether through things like emergency savings benefits, debt assistance or even one-on-one financial coaching”

Nobile pointed out that plan sponsors who offered a financial wellness program saw their retirement plans as more effective (97%) compared to those without a program (77%).

Employers’ also have a sense of duty with regards to employees’ financial wellness that has continued to grow, with nearly nine out of 10 sponsors surveyed feeling a “very high” or “somewhat high” level of responsibility for their participants, up from 74% in 2019 and 59% 10 years ago, according to the survey.

The researchers note that plan sponsors have faced a host of challenges in recent years, including the COVID-19 pandemic, the Great Resignation, rising inflation, market volatility and passage of the SECURE 2.0 Act of 2022, that is adding administrative and regulatory factors. Even so, “plan sponsors appear to have emerged with an ever-expanding focus on how to help position participants for greater retirement funding success,” the researchers wrote.

Four out of 10 sponsors report offering their participants a financial wellness program beyond retirement and health benefits, and an additional three out of 10 are considering offering one, according to the research. One-quarter of plan sponsors offered student loan debt assistance, and 40% offered emergency savings benefits, one-on-one financial coaching and/or debt management assistance.

Proactive sponsors are defined as those that implement programs that make it easy to tap into the benefits of the plan, such as automatic enrollment and contribution escalation, personalized communications and investment defaults into target-date funds and other professionally managed asset allocation strategies, according to J.P. Morgan.

• Key trends in the research showing more proactive movement toward investment menus and plan practices included:In 2023, 43% of plans offer automatic contribution escalation as compared to 21% in 2013. 
• The most frequently reported investment menu changes were adding “an option designed to generate income for retirees” at 45% and “reducing the number of investment options” at 35%.
• Three out of four surveyed sponsors reported feeling “extremely confident” or “very confident” that their participants have an appropriate asset allocation, led by proactive sponsors at 85% versus 59% for sponsors with a participant-driven philosophy.

The popularity of reenrollment, which is an annual or one-time event which reverts workers who opted out of a plan, has increased dramatically in recent years. Today, 55% of plan sponsors having considered reenrollment, and more than a quarter (26%) having already conducted or are planning to conduct a reenrollment in the next 18 months, up from 7% in 2019.

“It was encouraging to see the increase in plan sponsors who have conducted a reenrollment or plan to do so in the next 18 months,” Nobile said.  “Hopefully, this helps advisers with their discussions with plan sponsors as they work to make sure participants are properly allocated in their retirement plans.”

Increased income in retirement income could be another fruitful area for discussion, Nobile noted.

“It was interesting to see that more than half of plan sponsors say providing retirement income is a core purpose of their plans – and almost half without an offering are considering adding one in the next year,” she said. “Advisers may want to discuss retirement income with their plan sponsor clients and consider a short survey to gauge participant interest and understand the needs of their participants.”

J.P. Morgan Asset Management partnered with Greenwald Research to conduct an online survey of 788 plan sponsors from January 9 through February 28, 2023. All respondents are key decision-makers for their organizations’ DC plans. All organizations represented have been in business for at least three years and offer a 401(k) or 403(b) plan to their U.S.-based employees.