Non-Profit Market Sponsors Prize Offering Advice Access

TIAA finds one-on-one education and advice sessions with non-profit employees can have dramatic impacts on participation, contributions, investment allocation, and confidence. 

More than half, or 59%, of not-for-profit plan sponsors are concerned that their participants will run out of money in retirement, and 69% worry employees will delay retirement because they don’t have enough money, according to a new survey by TIAA.

However, the research also points to various strategies sponsors can adopt to address these concerns, including taking advantage of in-plan lifetime income solutions.

According to the survey, 54% of non-profit plan sponsors offer a guaranteed lifetime income option as part of their investment menu, while 46% don’t. Out of those that don’t offer one, 21% say fees behind these products are too high, and 34% say their employees can access such products outside the plan.

David Ray, senior managing director at TIAA, tells PLANADVISER, “There are more and less successful ways to offer lifetime income. Relying on participants to wait until they retire to get a lifetime income product is probably one of the least successful ways of doing it. Behavioral economics shows most employees won’t do it on their own.”

Furthermore, TIAA’s survey suggests that lifetime income products offered through workplace retirement plans can offer more valuable benefits at lower fees, at least in most cases. Ray points to a variety of potential benefits an in-plan lifetime income solution can provide to participants as they save for retirement. “In the accumulation years, the lifetime income concept, knowing you’ll always have some base level of income, significantly improves the confidence and commitment of participants.”

He also notes workers can have some piece of mind as they move through changing interest rate environments in the bond market. “A lifetime income product like a fixed annuity is a product that will insulate you, to a certain extent, from interest rate influx.”

Still, Ray says that the potential benefits of guaranteed income products need to be communicated more effectively to participants.

“Simplifying the message is important and it’s critical to use different methods to communicate the value of lifetime income products,” he explains. “There is a high percentage of employees in target-date funds (TDFs) that believes TDFs offer lifetime income, when in fact almost none of them do. So, education is critical to increasing adoption and understanding of these products.”

NEXT:  Targeted communication is more effective 

TIAA finds that some of the most effective participant education initiatives among non-profit plan sponsors involve highly targeted communication.

“Typically, if you have weakness in your plan, it is not universal across all the participants,” Ray says. “More often than not, it’s a segment or a few segments of your employee population that need more specific attention about specific challenges.” Plan sponsors can identify where these problems exist by tracking key metrics about the plan and its participants, leveraging data from the recordkeeper and other sources.

To this end, TIAA finds that when it comes to participant communication and tracking metrics, there is some gap between what sponsors believe works and what they practice. For example, the survey found that although 68% of sponsors believe targeting education to specific age groups is effective, only 31% do it. Furthermore, only 20% track participant data by age group. And although 21% of sponsors said tracking income replacement rates is important, only 14% do so.

Asked to identify what they see as “very effective” communication methods, these sponsors cited financial education targeted to different age groups (22%), seminars (16%), and education targeted toward women (11%).

“Another growing method of communication is using social media and gamification to engage participants—and to identify where they are along the education curve,” Ray explains. “Ultimately, that can help you know if they’re ready for retirement.”

Making this communication as personalized as possible is also important, Ray concludes. He says TIAA finds one-on-one education and advice sessions with employees can have dramatic impacts on participation, contributions, investment allocation, and confidence.

An executive summary of the TIAA analysis, “Not-for-Profit Plan Sponsor Insights,” is available here