Auto Plan Features Biggest Influence on Retirement Marketplace

Advisers predict that auto enrollment and auto deferral increases are the two principal features most likely to shape the retirement marketplace over the next three years.

The Pension Protection Act and growth of the defined contribution marketplace is viewed as a business expansion opportunity by advisers. Advisers say that 75% of their plan sponsor clients will add an auto enrollment feature within the next two years, according to a survey of advisers serving the retirement market by Putnam Investments. However, two of every five sponsors are resisting its use over concerns about increased matching contribution and profit sharing costs resulting from the anticipated rise in enrollment.

For their clients who do implement auto enrollment, the 525 advisers surveyed are recommending a variety of default investment options. Eighty percent of advisers said they recommend target date funds; 65% risk-based lifestyle funds; and 63% balanced mutual funds. Only 13% of respondents said they are waiting for final Department of Labor guidance on Qualified Default Investment Alternatives (QDIAs). Open architecture within bundled plans is a critical must-have, according to the survey.

Sixty percent of advisers say their clients have sufficient information related to plan fees, but they still rely on advisers for help, and half of the advisers say that they serve as fiduciaries to the plans they manage.

“Our 401(k) advisors strongly agree that auto features will be one of the dominant drivers of increased retirement savings, but the hurdle of perceived added program costs means that many plan sponsors will not provide these features to their employees,” said David Tyrie, Managing Director, Director of Retirement Services, Putnam Investments, in a press release about the study. “What’s clear, too, from our poll is that the role of the advisor is critically important long after the plan has been implemented, since plan sponsors continue to be reliant on their advisors for assistance and insight related to numerous operational and administrative plan issues.”