American DC plan sponsors generally have good intentions but often fail to act on them. A new report reveals a clear gap between the intent of sponsors to provide retirement well-being for employees and the actions they take.
A survey by J.P. Morgan Asset Management shows that more than 75% of plan sponsors see increasing employee financial security and helping workers achieve a financially stable retirement as highly important. And 60% of sponsors say they have a somewhat high to very high sense of responsibility for the overall financial well-being of their staff.
Yet only about 40% of sponsors view the number of plan members with account balances on track to provide security in retirement as a highly important measure of success.
And only a quarter of plan sponsors consider it a top priority to educate their employees about how much money they are on track to receive in their golden years—even though many workers underestimate the amount of income they will need in retirement.
Additionally, only 14% of DC sponsors say their advisor or consultant actively recommends new ideas and shares best practices for plan improvement.
“Employers see the need for change, but most need help in determining the best approach for their plan,” says Catherine Peterson, director of retirement insights at J.P. Morgan Asset Management. The new generation of DC plan components—such as design, investments, communications and administration—is readily available and just needs to be managed in relation to plan objectives, Peterson explains.
The main reason employers do not take action that can improve the retirement preparedness of their workers is fear of employee reactions, according to the survey. Twenty-seven percent of sponsors say they have not introduced auto-enrollment for fear that plan members would disapprove of it. For the same reason, 30% of employers say they have not implemented auto-escalation.
But, in reality, only 20% of DC members oppose a combination of auto-enrollment and auto-escalation, according to a separate recent survey by J.P. Morgan. Two-thirds of respondents in that survey say they greatly trust their employer’s ability to choose an appropriate retirement plan provider and set investment options.
“The implementation of auto features is absolutely critical to helping participants achieve optimal outcomes,” says Peterson. “Industry research shows that once enrolled in a plan with auto-enrollment and auto-escalation, less than 10% of participants ever opt out. Imagine the impact these auto features can have on the saving habits of those employees.”
The J.P. Morgan survey was conducted online from December 2012 to January 2013. It polled nearly 800 DC plan sponsors.
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