Plan sponsors are finally focusing on the metrics that will help their employees better prepare for retirement. In Fidelity’s ninth edition of its Plan Sponsor Attitudes survey the survey revealed that retirement readiness is now top of mind for plan sponsors. The top concern of plan sponsors in 2018 is “Is the plan effectively preparing employees for retirement financially?” Plan sponsors’ top reason for hiring an advisor? “I want to better understand how well my plan is working for my employees, and how I can improve it.”
This is a big shift from last year when fiduciary concerns and help managing them were the main concern and the main reason for hiring an advisor. In contrast, fiduciary help was only sought out by 14% of plan sponsors in this year’s survey. One would assume that plan sponsors do still care about their fiduciary obligations so perhaps these needs are already being met. In any case, it is heartening that plan sponsor focus has turned again to those for whom the plan is actually created: the participants.
At the end of the day, a retirement plan is supposed to be helping people save for retirement. If the plan is not doing this well, or is only serving certain types of participants then the plan must be changed. Plan sponsors seem to be realizing that this is their top goal and realizing that they need advisors help in figuring out if the plan is working well for the participants or not.
While I am encouraged at this renewed focus on retirement readiness on the part of plan sponsors, I still wonder if the metrics we use in the industry to measure this are really the best metrics to use. The most common metrics used to measure the effectiveness of the plan vis-à-vis its participants are participation and contribution rates.
On the one hand, these are good metrics to evaluate, primarily because they are easy to measure and also because we do, indeed, want to see these numbers improve. Improving participation rates and contribution amounts is important. When participation rates improve we can feel more confident that the participants understand the value of the plan and the value of saving towards retirement (or they have been auto-enrolled!). When contribution rates increase we can feel more confident that participants understand they need to always be saving as much as they can (or else they are automatically having their contribution increased). Improving retirement readiness of participants is linked to improving these two metrics.
In the 2018 survey, the top plan changes being implemented by plan sponsors were designed to increase participation rates (54% of plan sponsors) and increase contributions (51% of plan sponsors).
However, just looking at these metrics without context, particularly participation rates, can be misleading. If a plan has 100% participation but contribution rates are low, then the plan is still not as effective as possible. Auto-enrollment and auto-escalation features have been a boon to advisors, plan sponsors, and participants. Used together, these features are having success at improving outcomes. At best, however, these features are really just saving participants from their own inaction. They are targeted at symptoms rather than addressing underlying issues.
Improving participant outcomes cannot rest solely on automatic, artificial means. The element that will amplify the success of auto features, and ultimately play the greatest role in getting participants on track for retirement, is robust education. Plan advisors need to take the lead at improving and providing meaningful, personalized retirement education to participants. Improved education coupled with plan features that make it easy for participants to act on the education will be key for really improving participant outcomes. Plan advisors are the linchpin to this strategy, the only party with the expertise and resources to make this happen.
Many advisors will be reticent to provide this type of personalized information. After all, it is easier to just auto-enroll people and send them a link to the plan portal. But is this really a fulfillment of your fiduciary duty? True, it is a harder road to provide the type of education that will resonate with participants but my belief is that when advisors do provide this level of care that not only will they improve the retirement readiness of participants and act in the best interest of plan sponsors but they will ultimately grow their business as well. After all, with every advisor offering low cost funds, snazzy portals, auto-enrollment, etc. then the advisor who can demonstrate that they go above and beyond to serve plan sponsors and participants as an educator will be the one who rises above the pack.
A tall order to be sure but if we are serious as an industry about helping participants, then we should be willing to do what is necessary.
As a company, RetireReady Solutions is committed to this task which is why we help advisors provide meaningful, personalized education to participants. Click here if you want to find out more about our solutions for plan advisors.