Data and Research

DC Plans Focusing on Getting Employees Retirement Ready

When DC plans were first launched, plan sponsors mostly viewed them as a tool to attract and retain employees.

By Lee Barney | July 25, 2017
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Defined contribution (DC) plan sponsors are beginning to understand the importance of running their plans in a robust manner to get people prepared to retire with adequate income, J.P. Morgan says in a new report, “Progress Never Stops: How plan sponsors are sharpening their focus to strengthen plans and improve outcomes.”

When DC plans were first introduced 30 years ago, J.P. Morgan says, sponsors simply viewed them as vehicles to attract and retain workers. Today, plan sponsors increasingly feel responsible for getting their workers retirement ready, the investment firm says.

According to the report, 85% of large plans and 65% of plans overall automatically enroll their workers into the plan. Seventy-seven percent of large plans automatically escalate deferral rates. This is 50% among plans of all sizes. Eighty percent of large plans offer target-date funds (TDFs) on their investment menus; this is 62% among all plans. Ninety-three percent of large plans with qualified default investment alternatives (QDIAs) use TDFs as the QDIA, and 78% of all plans with QDIAs use TDFs as the QDIA. However, only 20% of large plans conduct re-enrollments, and a mere 13% of plans of all sizes do so.

Eighty-two percent of sponsors today say they feel a “very high” or “somewhat high” sense of responsibility for their employees’ financial wellness, up from 59% in 2013. Today, 82% of employers view their retirement plan as a tool to ensure employees have a financially secure retirement, up from 77% in 2013. Furthermore, 61% of employers now analyze the percentage of their employees on track to replace 80% or more of their final salary in retirement, up from 44% in 2013. In addition, 23% of employers say that getting the maximum number of participants to retire with adequate income is important, more than double than the percentage who said so in 2013.

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