Research and Surveys Can Help Inform Plan Sponsor Client Decisions

“Research is important because plan sponsors have a duty of oversight to manage the plan on behalf of participants: using data and research helps them fulfill their fiduciary obligations,” says Steve Utkus, principal and head of the Vanguard Center for Investor Research based in Malvern, Pennsylvania.

He notes that, in business in general, there is a move to use data to make better decisions. Retirement plan sponsors also feel the need to use data and insights to be better decisionmakers.

“Research is a great way to check in on employees’ specific needs and the trends impacting the retirement plan marketplace,” adds David Ray, senior managing director and head of institutional retirement sales at TIAA in Dallas. “Research can identify issues that are not coming to the surface in other ways, but it can also validate for plan sponsors what they are doing and motivate action if they are not doing helpful things.”

For example, Ray says, TIAA surveys have highlighted information about Millennials. “As they become a more dominant demographic in the workforce, how they think about retirement is important,” he says. TIAA found Millennials think differently about retirement. They are focused on how expensive long-term care will be and they don’t believe Social Security will be there for them. TIAA research found only 36% of Millennials think Social Security will still be a source of income for them.

In addition, Millennials are more likely to purchase an annuity (34%). “Plan sponsors can see that providing guaranteed income streams and offering features that encourage more savings in retirement plans are things Millennials can take advantage of,” Ray points out.

According to Utkus, at Vanguard, the research team uses white papers, research notes and infographics to report about general trends shaping retirement plans, but there is also a consulting arm that provides client-specific data to support these trends. Relationship managers and consultants deliver this information electronically and face-to-face.

For example, Utkus says, an ongoing plan design question is whether to adopt automatic enrollment and how to implement it. “So we continue to publish an overview of auto enroll trends, and an annual statistical update—our How America Saves report—but our consulting arm can also help by looking at a plan sponsor’s own plan demographic data to customize this decision for plan sponsors,” he says.

Ray notes that some research can also point out gaps in what plan sponsors see as effective ways to help retirement plan participants reach retirement goals and what they actually have in place. For example, TIAA’s Not-for-Profit Plan Sponsor Insights survey found although 68% of sponsors believe targeting education to specific age groups is effective, only 31% do it. Furthermore, only 20% track participant data by age group. And, although 21% of sponsors said tracking income replacement rates is important, only 14% do so.

“Income replacement rates are important to measure. There are tools that can help employers determine that,” Ray says. “In addition, plan sponsors can tie findings into specific education strategies, helping participants increase contributions or change investment allocations.” He adds that the survey found gamification has shown to be very effective at educating and driving participant engagement and leads to better outcomes and decisions.

Re-enrollment is one way to help employees save and have the right investment portfolio diversification. Utkus notes that Vanguard research has shown this.

Research helps with plan design decisions

Among other research that has helped plan sponsors with plan design decisions is Vanguard data about company stock as an investment option in retirement plans. Its research shows that has declined in general, but prominent companies are still offering it. The research report also offers alternative strategies to reduce the use of company stock.

In addition, a few years ago Vanguard researched trends toward offering managed account advice. Utkus says a number of plan sponsors used that research to determine whether to offer managed accounts and how to gauge effectiveness. They worked with consultants or relationship managers to come up with their own strategies.

According to Utkus, retirement plan sponsors have pondered the question of whether their plans should become the destination for participant accounts in the decumulation phase in retirement. Research shows 80% of people leave their retirement plan after five years of retirement. “If plan sponsors made their plan more attractive for retirees and got rid of archaic plan rules that have inhibited participant behavior, more might stay in the plan,” he notes.

TIAA research shows participants desire guaranteed lifetime income solutions. The 2017 TIAA Lifetime Income Survey finds more than half (56%) of Americans who are not retired say the most important goal for a retirement plan is to guarantee money every month to cover living expenses. Given a choice between receiving a $500,000 lump sum at retirement or getting $2,700/month for life, 62% would choose the monthly income.

However, even though Americans want steady income throughout their retirement, only 32% of those surveyed say their retirement plan includes access to products that provide monthly income in retirement. Among those who don’t have access or aren’t sure if they have access to such products, half would like such an option.

Data and research from providers and industry groups can help plan sponsors make more informed decisions. “Plan sponsors have more data than ever to use, rather than relying on hunches or guesses,” Utkus says.

“You have to do a lot of diagnosis before providing prescriptions, and providers offer that to plan sponsors,” Ray adds.