A survey released in early June by T. Rowe Price identified the major goals driving large defined contribution plan sponsors’ plan design. Many of those goals indicate these large plan sponsors feel a sense of duty to participants, and they’re doing more to help their workers reach a satisfying outcome.
The survey found 85% of large plan sponsors consider helping employees save for retirement a major goal of their 401(k) plan, the most commonly cited goal in the survey. Over two-thirds of sponsors agree strongly with the notion that helping workers save enough for a secure retirement is their responsibility.
However, despite this sense of responsibility, less than half of large plans have a formal way to measure participants’ retirement preparedness.
That was a surprise, according to Anne Coveney, senior manager of retirement thought leadership for T. Rowe Price, especially considering the survey’s sample of plan sponsors with more than $100 million in assets.
She noted that the survey asked specifically about formal metrics. “It may be that many are using more informal ways of measuring” participants’ progress, she told ThinkAdvisor.com.
Of sponsors who do have a formal way to measure participant preparedness, 52% are using a metric provided by their recordkeeper. Over 20% are using one provided by their advisor or a consultant, and a quarter are using some proprietary metric.
Coveney said that this finding represents an opportunity for advisors to reach out to sponsors. “Essentially, 73% [of sponsors] are outsourcing the metric,” she said.
Regardless of how they measure preparedness, plan sponsors that track their participants’ progress toward a savings goal tend to be more likely to offer plan design features that encourage savings like auto-enrollment, auto-escalation and periodic re-enrollment campaigns to add non-participants to the plan.
Auto-escalation schemes are still less common than auto-enrollment (58% versus 78%). Lack of interest from participants may be at least partly to blame. Almost half of the large plan sponsors that offer auto-escalation said participants opted out because they worried they couldn’t afford the regular cuts to their paychecks.
Some plan sponsors are responding to that concern by increasing workers’ compensation in line with the automatic escalation. Of the 21% of respondents who had adopted this strategy, it was most common among sponsors that also offer a defined benefit plan (35% versus 11%).