As Participant Sentiments Improve, Sponsor Decumulation Concerns Increase

BlackRock has released the results of its latest Defined Contribution Pulse Survey, compiling the opinions of some 200 large defined contribution (DC) plan sponsors and about 1,000 plan participants.

Sitting down to review the results with PLANADVISER, Anne Ackerley, head of BlackRock’s U.S. and Canada defined contribution business, said the data presents a pretty remarkable year-over-year uptick in participant confidence.

“One overriding comment is that these are people who have access to really some pretty strong 401(k) plans, so that definitely has an impact on the data that we are presenting,” she warned. “It is an important distinction to make, because as you know, if we were talking with everyone across the economy, those with plans and those without, there would potentially be some very different results. This is focused on people with access to larger plans.”

The first clear theme to emerge in the data this year, Ackerley said, is that employees are feeling quite optimistic about their prospects for retirement readiness. But, at the same time, their plan sponsors are feeling like there is a lot more work to be done.

“What are some of the stats that show this? Fully 90% of the participants we talked with were at least somewhat comfortable with their financial position in 2018,” she explained. “At the same time, 36% of them were feeling more confident this year than they were last year. And then 60% of the participants feel they are on track to retire on their own time frame with the lifestyle they want, which is up a full 17% from two years ago.”

There are a whole slew of additional data points that Ackerley shared along these lines—suffice it to say that confidence is broadly on the rise when it comes to retirement plan participants.

“We think this is a great thing that folks are feeling more confident,” Ackerley continued. “However, we do share the warning that a lot of this sentiment seems to be tied to the market performance of the last several years. In fact, 50% of the participants who felt they were on track for retirement cite as their main reason that their investments are performing up to their expectations.”

This is way up from two years ago, the BlackRock survey data shows.

“You really can plot the growth in the market against the increase in positive participant sentiments,” Ackerley said. “Don’t get me wrong, it’s not a bad thing that people feel good. But what we really like to see is when people are feeling better because they are now able to save as much as they would like, or because they have increased their contributions and made a more strategic plan—that sort of thing.”

Concerns from plan sponsors balance out participant optimism

What really shines an important light on the data points above are the complementary responses from the plan sponsors. For example, more plan sponsors this year than last have voiced a concern that their workers may have to delay retirement. Sponsors estimate this year that 54% of their participants may have to delay retirement in the future, versus the 34% of participants cited last year.

“That’s a dramatic increase in one year,” Ackerley agreed. “As a result of this concern, a lot of plans are making changes—54% made some sort of change to default settings in the last two years, for example.”

Broadly speaking, these plan sponsors either increased their default rate, changed the company match, and/or improved the default investment option.

“These plan sponsors are coming to a better understanding of just how much retirement readiness is their problem—when their workforce can’t retire on time it increases real costs, from health care to higher salaries,” Ackerley noted. “Older folks have more experience and can outperform from that perspective, but plan sponsors are coming to understand that workforce turnover is a critical issue.”

Related to this increase understanding of workforce turnover concerns is an increased focus on retirement income and decumulation.

“Fully 90% of plan sponsors tell us their company now feels responsible for taking action to support the sustainable retirement spending of participants,” Ackerley said. “There is still a lack of actual retirement income offerings in the DC plan context, but we see evidence that this is starting to improve. There is an increasing alignment here among all the various stakeholders.”

There is still some way to go on this project, the data show. While 86% of plan sponsors say they have taken some action to encourage participants to at least consider staying in the plan post retirement, when asked directly whether any of the actual investment options in the retirement plan are specifically designed to help participants support their spending needs once they retire, a mere 5.6% answered in the affirmative.