Participants’ Retirement Security Remains a Priority

Plan professionals may find it useful to know that plan sponsors continue to make participants’ retirement security a priority, and are boosting their work to enhance it. 

JP Morgan, in its fifth Defined Contribution Plan Sponsor Survey, which provides the results of an online survey of 788 sponsors of 401(k) and 403(b) plans during the period Jan. 9-Feb. 28, 2023, looks at how plans have addressed a variety of recent challenges, such as COVID-19, the Great Resignation, inflation, market volatility, and the enactment of the SECURE 2.0 Act. 

Highlights of their findings include the following: 

Plan Design 

The report notes that there are two predominant philosophies in making decisions concerning participants. 

Participant driven. This approach follows the principle that participants should primarily make their own decisions concerning participation, including whether to participate, how much to contribute and how to invest. 

Proactive plan design. This approach entails plan sponsors helping participants be better prepared for retirement through mechanisms such as (1) automatic enrollment, (2) contribution escalation, (3) personalized communications, (4) investment defaults into target date funds, and (5) other professionally managed asset allocation strategies.

Automatic Features 

The report says that automatic features are “continuing to gain momentum” and “have been shown to be highly effective” in improving participation and savings rates. It says that plan sponsors are expanding their adoption of automatic features such as auto enrollment and auto escalation. 

Still, JP Morgan says, use of automatic features is far from universal, nor even widespread. They report that nearly half of the plan sponsors surveyed—47%—do not offer automatic enrollment, and a slim majority—51%—do not offer automatic escalation. They further report plan sponsors that have a proactive plan design are much more likely to have auto features than those that follow a participant-driven plan design. 

Plan Communications 

The report says that most plan sponsors surveyed consider themselves to be effective communicators. Almost 80% say their communications help increase plan participation, contribution rates, and the percentage of participants who are making appropriate investment decisions. 

At the same time, the number of plan sponsors that are relying on general participant communications is falling as the number of plan sponsors that target and personalize communication grows. And that trend cuts across both philosophies regarding the approach to running plans, with those having a proactive approach particularly likely to adopt personalized communications. 

Employer Contributions

Employer matches are “extremely popular,” says the report; they are much more widespread than automatic features and becoming moreso—to the tune of 90% of plan sponsors. 

Not only that, says J.P. Morgan, more than half have either adopted the employer contribution/match in the last three years or have enhanced it—and 25% have added to or improved their immediate vesting schedules. 

Plan Fiduciary Status

Just 55% of the sponsors surveyed know that they are a plan fiduciary, according to the report. 

The top fiduciary concerns among the plan sponsors that know they are fiduciaries are: 

• getting the best value for the fees the plan and participants are paying;
• whether they are making prudent decisions;
• changes in the rules that apply; and
• the implications of selecting the right investments for a plan. 

Action Steps

The report suggests that plan sponsors can take some steps to expand retirement plan coverage and help participants. 

• Consider implementing automatic features. 
• Work with a financial professional concerning the best automatic contribution rates and escalation caps for a plan, keeping in mind that SECURE 2.0 requires that new plans escalate to 10%.
• Employ developing technology in order to personalize communication.
• Take a proactive approach, which JP Morgan argues is “a strong win-win” not only for plan participants, but also for plan sponsors that will help in achieving strong outcomes and boost satisfaction. 

It also suggests that plan sponsors could strengthen the investments they offer if they take these steps: 

• Follow a prudent, well-documented fiduciary process in choosing and monitoring investments. 
• Use a more comprehensive approach to understand the plan’s investment strategies. 
• Work with financial professionals. 
• Stay current with new industry advancements and investment best practices that may help better position participants for retirement funding success. 
• Consider conducting a plan reenrollment into a target date fund. 
• Consider demographics in the investment selection process. 

The Big Picture

Despite the multiple challenges they faced in recent years, plan sponsors nonetheless continue to expand their efforts to serve plan participants and help them build greater retirement security, the report concludes.