Truly Participant Focused

Photo by Matt Kalinowski

Those in the retirement plan industry have recently increased their focus on participants. Retirement plan recordkeepers, investment managers, plan sponsors, and advisers and consultants throw the word “outcomes” around extensively. And, though the industry talks a lot about outcomes, we don’t seem fully clear on what the word means—or maybe it means different things to different people.

For the purposes of this column, let’s assume that “participant outcomes” refers to participants’ ability to achieve their desired replacement rate and to retire when, and in the way, they choose. If you look at that meaning of the term, you’d think the industry isn’t doing well. Average account balances are much lower than what would be presumed necessary to support people in retirement.

That’s why some findings of the recent 2022 PLANSPONSOR Participant Survey were surprising: The vast majority of respondents said they want to retire “early” or at least earlier than what is full retirement age for them under Social Security; further, the majority are also confident they will meet their retirement needs, with two-thirds having a specific savings goal.

One thing worth noting is, as discussed in this issue’s Data Points article (see page 4), most of those saving in their employer plan intend to draw retirement income from various sources. This means any single DC plan will likely give a plan sponsor or retirement plan adviser a sense of only a fraction of participant retirement assets.

If as an industry we want to be truly participant focused, we have to help participants aggregate assets pegged for retirement to facilitate good financial decisionmaking. This account aggregation should include EGTRRA [Economic Growth and Tax Relief Reconciliation Act of 2001] rollover accounts, where assets of under $5,000 may have been automatically transferred to an individual retirement account outside of the plan when the participant left the employer. 

Years ago, a leader of a top 10 recordkeeper, speaking at the PLANSPONSOR National Conference, said, at some point, recordkeepers would have to allow for information sharing or for a central system that allows access to information about participant assets if the industry was going to solve for outcomes. His compadres at the time disagreed, but I’ve always remembered how ahead-of-the-time that comment was. The time is still not here, but we’re making progress. I’m excited about the work being done by companies such as Retirement Clearinghouse and the new consortium of Fidelity, Vanguard and Alight to help participants aggregate assets.

Nevertheless, as retirement plan advisers, you don’t need to wait for the recordkeepers to participate in such a system to help participants improve their own visualization of retirement. You can assist by encouraging plan sponsor clients to consider what they may want to do about encouraging roll-ins of other plan assets.

Helping participants consolidate assets makes your participant-level services, your financial wellness services and the overall plan support more valuable, because the metrics are more accurate. When you have only a portion of a participant’s financial picture, the advice and services require much more participant engagement—for the individuals to tell you or the online tool where other assets are invested, how many accounts they have, etc.—to be valuable. If, at a minimum, you knew you were working with the entire DC portion of assets, that would make the asset allocation and projections more accurate—and, therefore, more meaningful.