Investors in 401(k) plans need guidance and planning from their providers now more than ever. They’re not getting it.
This was the stark conclusion of the J.D. Power 2020 U.S. retirement plan participant satisfaction study, fielded in February and March.
At a moment of unprecedented market volatility, record job losses and complex new rules involving contributions, withdrawals and tax implications, much of the money accumulated in retirement plans could be lost if participants choose another provider for a rollover, the study said.
“The COVID-19 pandemic struck the U.S. right in the middle of the fielding period for this study, and it is crystal clear in our data that, as market turmoil increased, investor sentiment and economic outlook declined sharply,” Mike Foy, J.D. Power’s senior director of wealth management intelligence, said in a statement.
“This left many retirement plan participants searching for answers and guidance that was simply not provided by their provider. At this critical time, plan providers are largely failing to provide the guidance needed by participants to make smart decisions to help them prepare for retirement.”
According to the study, only 27% of retirement plan participants said they had accessed professional financial advice related to their plan. Twenty-nine percent either did not know whether such advice was available or perceived that it was not available to them.
Twenty-two percent of participants said they’d had no interaction with their provider during the past 12 months. J.D. Power noted that this was a problem for providers because frequency of interaction is directly correlated to participant satisfaction.
The study showed that overall satisfaction scores increased by 44 points (on a 1,000-point scale) when participants said they had interacted with their retirement plan provider one to four times per year.
Satisfaction scores increase by 99 points when participants engage 21 or more times per year with their provider.
J.D. Power said increased levels of unemployment and employment turnover would drive a surge in roll-in and rollover decisions during the coming weeks and months.
Among participants who purported to be “delighted” with their retirement plan provider, 51% said they “definitely will” retain assets in their current plan. For those who were indifferent with their plan, that percentage dropped to 12%, and fell to just 7% among those who were dissatisfied.
What’s a plan provider to do? J.D. Power said proactive, personalized digital communications can have a positive effect on participant satisfaction.
In the study, communication satisfaction scores were 70 points higher when participants received a personal communication via their retirement plan provider’s mobile app than when they got a traditional email.
However, just 15% of retirement plan participants said they had received this type of digital communication.
“It’s impossible to overstate the financial implications for firms that get the participant satisfaction formula right during this make-or-break moment,” Foy said.
“Historically, some plan providers have been focused only on the plan sponsor and, while that is changing somewhat, firms need to be laser focused on participants as well.”
J.D. Power’s study ranks retirement plan providers based on participant satisfaction on six factors:
- Interaction across live and digital channels
- Investment and service offerings
- Fees and expenses
- Plan features
- Information resources
Plan providers are ranked in three categories based on their overall mix of business in terms of average plan size.
In the 2020 study, 10,159 participants took part.
Check out the gallery to see how satisfied plan participants were with their providers.
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