Data & Research August 29, 2023

Fidelity Finds 22% of Plan Sponsors Actively Searching for New Adviser

Among those looking, 38% they were seeking an adviser offering more extensive services.

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One in five plan sponsors (22%) reported they were actively looking to switch advisers, with motivations including more service offerings and better participant communication and education, according to the 14th Fidelity Plan Sponsor Attitudes Study.

Among plan sponsors looking to switch advisers, 38% said they were searching for an adviser who provided more extensive services, followed closely by 36% interested in an adviser who was better at tacking servicing issues, and 34% seeking someone with more effective employee communication and education options.

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The results come amid continued consolidation in the retirement plan advisory space by aggregators. That shift in the market also showed up in the survey responses, with 35% of those plan sponsors looking to shift advisers noting they are doing so for external factors or benchmarking purposes. 43% of that subset noted that their adviser’s company went through a merger or acquisition, and 38% reported the adviser either retired or left the business.

“While we see the relationships between plan sponsors and plan advisers evolving, employee communication and education remains at the forefront, with sponsors looking to advisers to offer a more holistic experience,” Liz Pathe, head of defined contribution investment only sales at Fidelity Institutional, said in a statement. “With plan designs, investment lineups, and the benefits landscape all evolving, advisers have an opportunity to showcase their impact and service-centered mindset.”

Plan Sponsor Expectations

The survey of 1,351 plan sponsors did show that the majority of respondents are happy with their adviser’s services, with 76% reporting being extremely satisfied. That will likely bode well for advisers in terms of continued work with their clients, as a whopping 95% of respondents expect to make plan design adjustments in the remainder of this year.

Those changes include increasing the matching contribution (26%), increasing the quota-enrollment deferral rate (26%), and beginning to offer an income replacement fund (26%).

The primary focus of most plan sponsors (94%) working with an adviser is employee education and plan improvement, according to Fidelity. The research also revealed plan sponsors value improved participant outcomes (44%) over any other service offered by their plan adviser. Other notable drivers of value were time spent on plan and administrative support (43%) and providing objectivity when making plan choices (41%).

Investment Menu

Investment menu changes continue to be on the rise, according to the recordkeeper. Plan sponsors said the most notable enhancements in the last two years were an increased number of investment options (30%), rise of collective investment trusts (29%), and offering CITs for the first time (28%).

From 2018 to 2023, the percentage of sponsors starting to provide CITs saw a 10% annual growth rate. Twenty-nine percent of respondents were thinking about offering CITs for the first time. Additionally, 28% considered increasing the number of CITs and index funds offered.

“We’re seeing an increase in small plans preferring advisers to have autonomy when managing investments and overall design,” said Pathe in the statement. “In an evolving investment landscape, it’s not surprising to see sponsors lean on adviser expertise to strengthen overall knowledge and make modifications to product lineups.”

Fidelity conducted the online Plan Sponsor Attitudes Study in March 2023, the 2023 Plan Sponsor Attitudes Study was an online survey of 1,351 plan sponsors on behalf of Fidelity. Fidelity Investments was not identified as the survey sponsor.
Client Service August 28, 2023

NQDC Plans, Which Can Improve Retention, Are Underutilized by Participants

According to NFP, the vast majority of employers feel competing for talent is ‘more expensive than ever,’ and businesses are turning to creative offers to keep executives satisfied without breaking the bank. 

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A key factor in retaining top executive talent is offering a nonqualified deferred compensation plan, according to 92% of employers who participated in NFP’s recent Executive Benefits Trend Study. 

However, NFP, a benefits consultant, wealth manager and retirement plan adviser, found that while NQDCPs are appealing to companies of all sizes, they appear to be underutilized, with eligibility rates outpacing population and few companies planning to make near-term changes. 

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An NQDC essentially allows an employee to earn wages, bonuses or other compensation in one year but receive the earnings—and defer income tax on them—in a later year. With any type of deferral, the plan sponsor can design the plan to specify whether the participants’ money is available to them before retirement or at separation of service. 

Out of the 98 executive benefits employers who partner with NFP for executive compensation packages, only 32% said participation in their NQDCP had increased since 2020, and 75% said they do not plan to make any changes to their NQDCP. Meanwhile 45% said eligibility has increased since 2020; NFP argued that increased communication can help close the gap between eligibility and participation. 

“Nonqualified deferred compensation is an essential lever in creating executive benefits programs that enhance retention of top talent, but the plans are being underutilized,” said Joe Carpenter, head of executive benefits at NFP, in a press release. “Companies need to tailor their plans to the unique needs of their executives and untangle the complicated plan details for them.  Continuous plan communication and knowledge-sharing also matters as it helps drive how executives perceive the value of the benefit.” 

The majority of employers surveyed (79%) allow participants to defer their base salary, and a little more than half (58%) allow participants to defer annual bonuses. Almost 60% of employers contribute a discretionary and/or percentage of the employee contribution on top of that.  

Carpenter added that there are several untapped benefits that employers can offer to their executives, such as supplemental executive medical insurance and college tuition for children, that can set them apart from others. 

However, 85% of employers said they feel remaining competitive in the executive benefits market is “more expensive than ever,” and many businesses are resorting to creative offers to keep their executives satisfied at a manageable cost.  

According to PLANSPONSOR’s 2023 Defined Contribution Plan Benchmarking Report, which surveyed 2,562 plan sponsors from a variety of industries, 7.9% of plan sponsors reported offering an NQDCP. Plans that had greater than $1 billion in assets were the most likely to have an NQDCP, with 42.9% offering one.  

NFP also found that executive retirement behaviors are evolving in opposite directions, with one-third retiring later and one-quarter retiring sooner. But regardless of when these executives plan to retire, most feel behind in preparation.  

“Businesses have found deferred compensation plans to be highly effective in preparing their executives for retirement, and many offer NQDCPs primarily for this purpose, but they need to go a step further by tailoring plans to the unique needs of executives,” the report stated. 

NFP recommended that plan sponsors revisit their executive benefits early and often, look beyond traditional offerings to come up with more creative benefits that will set them apart and optimize their executive benefits package to counter rising costs in an unsettled economy.  

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