Op-Ed: Financial and 401(k) Trends to Consider

A labor crunch known as The Great Resignation and The Great Retirement are the twin challenges of the early 2020s.

Big Four accounting firm PwC recently conducted a survey of workers in which 65% of respondents reported they were seeking a new job, as of the beginning of August.

That’s up from 36% in May, a jump the survey authors call “astounding” and supportive of the idea that economic fears from earlier in the pandemic may have dissipated. At the same time, the pandemic has caused more workers to rethink their relationship with work, PwC finds.

Across the economy, businesses are seeing more competition for talent. This creates an opportunity for plan advisers to serve clients as a strategic partner in attracting and retaining talent through responsive and modern 401(k) solutions.

Around the same time PwC was conducting its survey, Sequoia published its annual “Employee Experience Benchmarking Report,” which identified some key trends in retirement planning and financial wellness.

One trend the Sequoia survey discovered was an increase in businesses offering 401(k) plans that include funds using environmental, social and governance (ESG) themes. These funds take ESG factors into account when building an investment portfolio, though the funds vary on their goals. A fairly new concept, more than a third of companies surveyed reported including at least one ESG-type fund in their 401(k)s, with many of them adding the fund in just the past year. By next year, it is estimated that number could increase to 43%.

Companies are also adding both automatic enrollment and earlier participation eligibility as ways to encourage financial well-being. More than half (61%) of companies report offering immediate eligibility for 401(k) enrollment, with about a quarter (24%) keeping a one month eligibility period. This is likely an attempt to encourage more participation, as it can be more difficult to get people onboard later, as well as an attempt to keep up with the competition.

Back in 2016, only 33% of companies reported having automatic 401(k) program enrollment. Today, 56% of companies have auto-enrollment, a trend that has climbed every year. 

This benefits employees because they tend not to opt-out of auto-enrollment, while, on the other hand, getting them to opt-in can be quite difficult. There is a direct correlation between auto-enrollment and higher participation. Nearly three-quarters of auto-enrollment companies had a 75% or greater participation rate in their 401(k) program.

Many advisers expected to see major shakeups when it came to 401(k) contribution matching by companies due to COVID-19. Not only is that not the case, but more companies are offering 401(k) matching today (45%) than in 2018 (36%). And 13% of companies plan to add or increase their match in the next 12 months. That is almost twice as many companies as reported having ended their 401(k) match (7%). It’s clear that as economic uncertainty has lifted, competition in compensation at all levels has increased, including with 401(k) plans.

Finally, the survey revealed that companies are focusing on wellness. This includes emotional, mental and physical wellness, as well as financial wellness—and that covers more than just retirement planning.  Advisers should consider offering clients solutions for their employees’ monthly expenses and day-to-day spending. 

Companies are focused on holistic financial solutions, such as investing in employee financial education (60%), support resources (32%) and financial well-being components (16%). Helping clients pick the right financial wellness tools for their employees can differentiate your practice. It also addresses the here and now and can make retirement funds more in-tune with the real-world financial conditions workers face.

Furthermore, it is clear that workers are expecting more from their employers in nearly every facet of their relationship, including a more responsive retirement and financial wellness program. This creates opportunities for advisers to make a greater impact on clients’ business goals through greater understanding of the relationship between financial wellness and employee experience.

About the author:

Molly Knapp is the vice president of 401(k) services at Sequoia Consulting Group. She is FINRA licensed- series 6, 7 and 65.

Editor’s note:

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.