Deloitte’s 15th Annual Defined Contribution Benchmarking Survey found that with current regulatory uncertainty and increasing litigation from plan participants, defined contribution plan sponsors are focusing on their fiduciary responsibilities by shifting investments to lower cost options, utilizing direct fees and simplifying investment approaches. These actions aim to help participants tackle their future retirement income needs.
With nearly 240 plan sponsors participating, this year's survey indicates an overwhelming push for plan sponsors to determine participant income replacement ratios by conducting retirement readiness assessments. In fact, 35 percent of plan sponsors are doing so, representing a 23 percentage point increase over Deloitte's last survey. The evolving legislative landscape, shifting fiduciary responsibilities and efforts by organizations to optimize their human capital balance sheets are factors driving plan sponsors to simplify offerings and help participants adequately manage their retirement income needs.
"As contribution and investment decisions move from the hands of finance departments to individual participants, the expertise of plan sponsors has shifted from a financial management role to a keen attention on their fiduciary oversight role," said Stacy Sandler, principal, Deloitte Consulting LLP. "By acting in the best interest of plan participants, plan sponsors are offering holistic tactics to support participant financial wellness and focusing on simplifying the plan offerings. A critical component of that is making sure sponsors better educate employees on options and help them to fully utilize the financial tools and resources available to them."
Financial Wellness Takes Center Stage
Plan sponsors have responded to an increased focus on their fiduciary role and financial wellness concerns by taking behavioral finance approaches and leveraging tailored technological solutions at their disposal. This is in line with findings from Deloitte's survey, which indicates that 66 percent of employers want providers to focus on enhanced plan sponsor websites and tools that will help them identify where to concentrate their education efforts.
Plan sponsors have been concentrating on getting the right messages to the right audiences in the right way. The most popular form of communication is demographic targeting, with 65 percent of employers using it, compared to 54 percent using activity-based and 45 percent using behavior-based targeting. Financial analytics are also playing an increasingly important role in broader financial wellness and through integration with defined contribution plan offerings. In fact, 65 percent of those surveyed have cited the introduction or enhancement of "auto-pilot" solutions, such as auto-enrollment, step-up features and managed accounts, bringing automatic enrollment to the third most cited reason for participation in this year’s survey. Additionally, as organizations seek to become digital, the availability of mobile transactions for managing defined contribution accounts has tripled since 2013.
The Match Is Unmatched
Talent acquisition, engagement and retention concerns seem to underpin trends in companies matching contributions, with nearly 93 percent of survey participants revealing that they offer some form of matching or profit-sharing contribution in their defined contribution plans. Signifying its importance, matching contributions upon plan participation increased to 74 percent in 2017 regardless of company size, continuing an upward trend from 71 percent in 2015 and 62 percent in 2013–14. More than half of plan sponsors (54 percent) responded "yes" when asked if there is a true-up of the employer match at the end of the year in certain situations, a nearly 10-point rise from 45 percent in 2015.
This year's survey identified the top reasons for participation in a defined contribution plan. Based on the 2017 results, taking advantage of the company match at 41 percent (up from 35 percent in 2015) overtook the leading reason given in the 2015 survey, which was a personal desire to save for retirement (down from 40 percent to 31 percent). The survey also seeks to find the reasons employees do not participate in a defined contribution plan. Consistent with the 2015 survey, lack of awareness or understanding was the leading known reason at 28 percent (down from 34 percent), while uncertain economy/job market continued its downward trend at 7 percent (down from 12 percent in the previous survey and from 14 percent in 2013–2014).
"A company match has proven to encourage participants to join their plan and save for retirement," said Cheryl Ouellette, specialist master, Deloitte Consulting LLP. "Reducing constraints to participate once again showcases how plan sponsors are focused on their plan participants' best interests, with an overall goal of helping them save for retirement."
Retirement as a Retention Tool
As companies battle for top talent, the survey showed a slight increase in the number of employers indicating their defined contribution plan is an effective recruiting tool, and 62 percent of respondents believe their plans are effective in retaining existing employees, marking a continued decline in this sentiment since 2012.
Plan sponsors look to employee participation numbers as indicators of the effectiveness of their plans. The survey suggests that that decreases in employees understanding their benefits may correlate to rising levels of auto-enrollment.
"As the longevity of employees' careers increase, retirement programs have become an important component to drive workforce retention," said Josh Bersin, principal and founder, Bersin by Deloitte. "Employees remain the most important asset organizations have, and retaining skilled talent is more important than ever."
For additional information or to view the Deloitte "Annual Defined Contribution Benchmarking Survey" click on the link https://goo.gl/iFzua9.
Deloitte's 2017 Annual Defined Contribution Benchmarking Survey was conducted electronically and the survey's 240 respondents are fairly evenly distributed by geography, size, industry and ownership status (i.e., publicly or privately held).