When Asked About Benefit Trade-Offs, Participants Show Preference for Guarantees

The 2020 PLANSPONSOR Participant Survey shows that if retirement plan participants are given a choice between two benefit options, in most cases, they are just about evenly split between them. However, it does show a slight preference among participants for guarantees and amply demonstrates that company matches matter.

For example, if the participant was offered the choice between a one-time $5,000 bonus or a one-time $5,000 contribution to their 401(k) account, 54% would choose the former and 46% would choose the latter.

There seems to be a higher preference, however, for a higher employer contribution to the plan, even if it means waiting during a vesting period, as 62% said they would choose a 6% employer contribution that is vested after five years, but only 38% would go with a 3% contribution that is immediately vested.

Participants also indicate a slight preference for a more favorable health care plan, with 51% saying they would take a $250 per month reduction in health insurance premiums and 49% preferring a $250 per month increase in employer contributions to their 401(k).

Contributions by the employer do, indeed, matter. Fifty-four percent would prefer a $3,000 annual contribution to their 401(k) from their employer, even if it required the employee to put $6,000 of their own money into the account. By comparison, 46% would just take a $1,500 annual nondiscretionary contribution from their employer that didn’t require them to make any contribution of their own.

Participants also indicate they would slightly prefer being offered a 401(k) plan over a higher salary. Fifty-two percent said, if given the option, they would prefer to work for a company that has a 401(k) plan but that pays 10% less, but 48% would prefer to work for a company without a 401(k) plan that pays 10% more. The results change, ever so slightly, when it becomes a question of a 20% difference in pay, with 52% choosing the hypothetical option of working for a company without a 401(k) but that pays 20% more, and 48% going with the choice of working for a company with a 401(k) but that pays 20% less.

Preference for Guarantees

When it comes to performance, participants also show a preference for guarantees over the possibility of losing money. Fifty-eight percent said they would take a guaranteed 3% annual return over a market-based return that might greatly exceed 3% but that could also lose money (42%).

“Women have a much stronger preference for guarantees than men,” says Brian O’Keefe, vice president, research and surveys, at Institutional Shareholder Services (ISS), parent company of PLANADVISER and PLANSPONSOR magazines. “If you look at the splits by gender, responses to most scenarios are pretty consistent between men and women. However, women are far more likely to favor guarantees than men. Additionally, women are consistent in their preference for guarantees. The percentage of women favoring a guarantee of 2% or 3% is basically the same, while the percentage of men willing to accept the guarantee increases as the guarantee increases.”

In addition, O’Keefe continues, “lower-income respondents also have a strong preference for guarantees. As household income increases, the percentage of people preferring guarantees drops. This is not all that surprising.”

On the same note, 60% would prefer guaranteed, lifetime, tax-free monthly payments of $200 a month starting by at least age 60 over a one-time $10,000 contribution made to their 401(k) account today (40%). Fifty-one percent would be willing to pay higher fees in hopes of receiving above-average returns, but slightly less (49%) would go with the opposite, that is, paying lower fees but accepting below-average returns.

The online questionnaire was completed in September by 1,163 individuals, ages 23 and older, 220 of whom were unemployed.