Clashing Financial Priorities Can Derail Participants

During a recent webinar hosted by Broadridge, expert speakers from Market Strategies International presented their latest data detailing the aims and expectations of retirement plan participants.

The data shows strong ongoing increases in the offering and uptake of automatic plan design features, such as auto-enrollment and auto-escalation of salary deferrals, leading collectively to better-performing retirement plans. Tied to the greater use of more aggressive qualified default investment alternatives, most notably target-date funds and managed accounts, these automatic plan design features have had a strong positive impact on the anticipated outcomes of many participants, experts noted, and they should continue to do so. 

However, the experts also presented findings having to do with participants who are not necessarily making optimal decisions within their defined contribution plans. One clear issue the experts addressed is the sizable group of participants who moved to decrease their retirement salary deferrals during the last year.

Within this group, the data shows 27% cited “needing to pay down debt and bills” as the primary reason for redirecting income away from retirement accounts. Another 25% cited “needing money for day-to-day expenses,” while 18% reduced salary deferrals to “finance a major life event” and 16% did so to “address less income.”

As the experts explained, these stats show the retirement planning effort can really only be successful once participants’ shorter-term financial priorities are addressed. Another common hurdle leading to meeker salary deferrals was “increased medical expenses” (10%).

The experts noted that the “end-to-end journey for a single participant experience with a given provider will have between 100 and 200 points of inflection across the consumer lifecycle.” By focusing on delivering the right educational content at the right time to the right people, plan providers and employers have a tremendous opportunity to improve overall outcomes, experts agreed.

The group concluded that retirement plan participants broadly benefit from financial wellness programming that on its surface might have very little to do with the strict topic of retirement planning. Again, this is due to very real possibility that financial hardship in the short term will prevent people from participating in tax-qualified retirement plans, or cause them to reduce their otherwise-appropriate deferrals.