Data & Research June 12, 2024

Institutional Plan Consultants: Nearly 90% of Clients Want Income Solutions

PIMCO’s survey of DC plan consultants noted clients seeking a suite of both non-guaranteed and guaranteed income options.

Reported by

Institutional defined contribution consultants are getting this message from nearly 90% of clients: We want retirement income solutions to offer our participants, according to PIMCO’s 2024 DC Consulting Study.

In a study capturing data, trends and opinions from 28 consulting and advisory firms working with more than 15,000 clients representing more than $7.9 trillion, respondents said 90% of large institutional clients put retirement income solutions of both guaranteed and non-guaranteed options as a top priority—a 21% increase over 2023.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

“The focus on retirement income continues to be a theme that is top of mind for consultants and their clients,” Rene Martel, managing director and PIMCO’s head of retirement, said in a statement. “As more and more workers enter retirement, we expect to see a secular shift toward income generating investments and services for those who spent decades saving for retirement through defined contribution plans like the 401(k).”

Plan sponsors are focused on adding retirement income options through “plan design, education and expanding investment options for retirees on plan menus,” according to the researchers, who conducted the surveying in January and February of 2024.

Those options can be non-guaranteed or guaranteed, PIMCO noted, with target-date funds being the preferred delivery for non-guaranteed options, and out-of-plan annuities as a guaranteed solution.

The drive toward retirement income may in part be coming as two-thirds of DC advisers believe clients either prefer or are actively seeking to keep retired worker assets in the plan, according to the findings.

But doing so also means providing more options to this participant pool, according to PIMCO. That means more consultants working with clients on expanding the core retirement plan menu to include options such as “multi-sector fixed income and annuities.” 

In-plan retirement income solutions backed by annuities are proliferating, with solutions ranging from institutionally priced annuities available for purchase by participants to TDFs that include an annuity sleeve which participants can be defaulted into when closer to retirement age. Uptake, however, is still relatively minimal, with just 6.7% of plan sponsors offering an in-plan annuity option and another 26% offering them via a managed account service, according to the 2024 PLANSPONSOR DC Benchmarking survey.

The focus on retirement income is somewhat divided between advisers PIMCO labeled as aggregators versus institutional consultants.

Aggregators actually listed financial wellness as the top growing service for clients, not retirement income, which led for institutional consultants. That may be because “aggregators are more likely to provide participant services, including one-on-one advice,” the firm noted. “Institutional consultants are unlikely to provide these services, but will evaluate providers on behalf of clients.”

That bifurcation also has aggregators more optimistic about the use of more personalized managed accounts with income guarantees for the qualified default alternative investment for participants; institutional consultants expect TDFs with guarantees to be the most-used option.

When it comes to TDF managers, consultants say clients are more focused on the glide path’s fit for their participants (89%) than on who has the lowest fees (71%). Meanwhile, historical performance (36%), brand comfort (21%) and return expectations (21%) were only checked by a minority of respondents.

Data & Research June 12, 2024

Why Aren’t Participants Using Financial Wellness Programs?

Cerulli found that most financial wellness solutions are used at a rate of under 20%, with muddled communication and definition of services potentially crimping uptake.

Reported by

It may not surprise anyone working in the retirement space, but it may still disappoint them to hear that new data shows most participants are not taking advantage of financial wellness tools.

According to a new Cerulli Associates report—U.S. Retirement End-Investor 2024—most financial wellness products and services have usage rates of less than 20% among plan participants.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Somewhat more promising is that of 401(k) participants who used a financial wellness tool or service, 41% considered it very useful; that said, another 57% are ambivalent about the experience.

Moving the needle on financial wellness usage is not just about the near-term effect for participants, but can matter for the long-term relationship between them and professional advice.

“Often plan advisers have significant incentive to increase engagement with financial wellness programs, especially if the adviser is the one delivering the financial wellness program as opposed to the recordkeeper,” says Elizabeth Chiffer, an analyst at Cerulli.

Financial wellness programs can help build relationships with plan participants and gather richer participant data, she says. In Cerulli’s 2023 survey of retirement specialist advisers, financial advisers with 50% or more of practice assets under management held in employer-sponsored retirement plans 43% agreed that financial wellness programs create increased opportunities to gather retail assets.

Designing for Engagement

In Cerulli’s view, most financial wellness programs include the fundamental components needed to reduce participants’ financial stress and improve their readiness for retirement, but they are frequently not designed in a way that encourages participation.

Instead, the consultancy recommends that financial wellness programs give customers personalized, straightforward advice to produce greater results over time.

“Financial wellness programs that are most effective should evolve to include guidance that provides users with actionable and achievable steps to take that will improve their financial life,” Chiffer says. “Financial education alone builds financial literacy, which is only one component of financial wellness. Financial wellness programs must help users make positive financial decisions. Messaging to plan participants aimed at increasing use of financial wellness tools should be short and accessible, as not to overwhelm participants with information.”

In addition, she suggests that messaging should be framed positively, as financial issues can be a significant source of stress for plan participants. With the implementation of an effective financial wellness program plan sponsors will see a less financially stressed workforce and perhaps more productive employees.

While providers should work toward retirement savings being seen as a “net positive” for participants, Chiffer noted that, currently, about 40% of active 401(k) participants view contributing to their retirement savings as a sacrifice. Yet, nearly half of active participants (46%) believe their retirement income will come from funds in individual retirement accounts or 401(k) accounts.

The analyst also suggested that the best financial wellness initiatives take into account each 401(k) participant’s complete financial circumstances and offer coaching, financial planning or counsel.

“A key feature of personalized financial wellness programs, in general, is their ability to effectively account for key life events in the investor’s life,” Chiffer says. “Participant communications that integrate new, relevant information about participants’ financial lives in a timely manner are more effective at driving positive financial actions.”

Wellness vs. Education

Furthermore, Cerulli added that it’s common to confuse financial wellness with financial education. The distinction between financial wellness and financial literacy-related products and solutions is not always clear in the industry. Products and solutions cannot reach the right audience when terminology is used incorrectly, which also impedes the adoption of financial wellness programs, according to the firm.

Based on the research, 71% of 401(k) plan sponsors have implemented a financial wellness program, and over 90% of defined contribution recordkeepers provide financial wellness services to their clientele. The lack of their usage is the primary reason 401(k) plan sponsors decide not to offer a financial wellness program, according to Cerulli. Sponsors think participants won’t take advantage of the offerings.

According to Cerulli’s annual survey of 401(k) plan sponsors in 2023, Of those plan sponsors that did not offer a financial wellness program 28% cited “employees would not take advantage of the program” as the reason for not offering one. Others cited that a financial wellness program would be too expensive, or were unsure how to implement a program, for example.

“This highlights that while financial wellness programs have high adoption, they often face low usage, which is why these programs need to evolve to boost participant engagement and actually compel plan participants to make positive financial decisions,” says Chiffer.

«