Participant Goals Show Need for Plan Design Improvements

When considering the average participant’s current saving situation, there is one clear theme: Their workplace savings plan can do more to support their saving and retirement goals.

In the most recent participant survey from PLANSPONSOR, which, like PLANADVISER, is owned by Institutional Shareholder Services Inc., participants reported a strong desire to leverage workplace savings to fund retirement. But there was also a disconnect between their retirement savings goals and the amount they are putting away to meet them.

Some of the highlights from that report can help inform what plan advisers can focus on to improve plan design.

Goals vs. Reality

Industry reports and surveys continue to highlight many people’s plans for “phased retirement,” in which they continue to work beyond the traditional retirement age, either to keep busy or out of necessity.

In PLANSPONSOR’s participant survey, however, about 50% of workplace savers still expect a more traditional retirement, either with Social Security and retirement savings or based on just their own assets. The reality, however, is that people are living longer, which makes income needs in retirement greater than in the past, says Michael Doshier, senior defined contribution adviser strategist for T. Rowe Price.

Plan advisers and sponsors are aware of this trend, which is why more of them approach plan design with a participant’s full lifecycle in mind, Doshier says.

“Plan sponsors have recognized [the longevity issue] and are considering these strategies of guaranteed target dates or managed accounts or other type of personalized solutions,” Doshier says. “The climbing of the mountain and the descending are inextricably linked.”

For plan advisers, Doshier says, it is important to have a process to evaluate how many participants may be staying in their workplace plans into retirement. That can influence everything from the automatic deferral rate to auto-escalation plans to the investment mix. In addition, if a large number of participants may be using their plans in retirement, considering retirement income-oriented products is important, he says.

“As of now, about 13% of consultants and advisers have already done that, but 33% are interested in adding that in coming years,” he says. “I think that needs to be 100% in coming years, or otherwise you’re facing fiduciary risk.”

Increasing Chances of Success

Plan design is the main area in which advisers bring significant value to retirement outcomes, as investment mix options tend to be strong, says Craig Stanley, a lead partner of retirement plan consulting at Summit Group 401(k) Consulting, an Alera Group company.

Advisers can also guide toward quality personalization options if a participant will engage in them, but “human inertia” will often win out, causing many participants simply to stay in their plans in retirement, Stanley says.

“There’s just a general element of human inertia that’s never going to go away,” Stanley says. “We look to design great plans where those terminated employees feel comfortable and confident staying in it and can continue to use it [if they do not roll out to work with a financial adviser].”

As the results showed, employee matching is the most common tool used to try and encourage participants to save, available to almost 70% of participants. Yet most participants reported saving less than 5% of their paycheck (50.7%), and many (37.5%) opted for the automatic default rate, rather putting in additional funds.

Those statistics show there is certainly room for more savings, some of which may be done through plan design, re-enrollment programs and participant education campaigns.