Participation Rates Give Incomplete Picture

Leaning too heavily on participation statistics alone may mask a sub-optimal education program.

Retirement plan advisers solve problems, noted E. Thomas Foster, a spokesman for MassMutual’s retirement services division, speaking at a presentation by MassMutual on Tuesday, and they are experts at sizing up a plan. “When I talk to plan sponsors, I ask a few simple, probing questions,” he said, noting that size of plan is of little importance. At a session with plan sponsors ranging from Apple and Williams-Sonoma to smaller business owners, Foster says the same question resonated with all plan sponsors.

“How many of you can say succinctly what percentage of your participants are ready to retire right now with 75% to 80% of income at age 67?” he recalled. The answer might be surprising. Very few were able to quantify how plan participation actually ties into outcomes, and Foster pointed to education as the solution—or perhaps the problem.

“You might think you have a good education program, but if you can’t answer that, your education might not be as good as you think,” Foster said. Plan sponsors need a process that can lead them through the metrics and analysis to see where on the readiness scale their employees are.

Participation doesn’t tell the whole story, agreed Elaine Sarsynski, executive vice president of MassMutual retirement and Worksite insurance. “Plan sponsors may think they have a 95% participation rate, but that can be so far from truth,” she said. “Employees may not be investing enough, they may not be invested properly, and it can create real issues.” Getting to the real statistics is critical, Sarsynski said.

According to Foster, the retirement industry may be too hung up participation while outcomes go under the radar. “You can have 100% participation in the plan, but if you don’t have the right outcomes, that is an exercise in futility,” he said. The key is to have the right way to measure for employees how much they will be able to receive in retirement for the rest of their lives, and it is critical to ask the right questions.

NEXT: Retirement readiness and plan outcomes tied to education

The solution is tracking participant progress and being able to quantify whether the plan is on track for participants, Foster said. One way to get to optimal outcomes is the plan’s education program, revealed in MassMutual’s new research as increasingly important to plan sponsors. Employee education is universally valued, according to “A Winning Combination,” a study that looks at what retirement plan sponsors value most from financial advisers.

The study also found that most plan sponsors want a plan adviser to educate employees on how the plan works and the importance of contributing, but those without an adviser are especially interested in personalized advice for employees, especially those nearing retirement. Those working with an adviser want more frequent education than they get.

Most plan sponsors with assets between $25 million and $75 million want an adviser to provide education or advice to their participants in person semiannually or more often. Plan sponsors that don’t work with an adviser are more likely (49%) to choose education annually (in contrast to 39% of those that work with an adviser).

Possible obstacles to an education program, according to the report: some advisers mentioned needing better cooperation from plan sponsors in order to provide education to participants. They said it could be difficult to motivate plan sponsors to schedule a time for the adviser to come in and conduct group or one-on-one sessions.

Employers that work with an adviser said education, service and fiduciary responsibilities are the best combination of attributes in a value proposition statement. And those plans without an adviser gave top ratings to education and service, when paired with an adviser’s commitment to reducing plan costs.

The MassMutual “Winning Combination Study” polled 565 plan sponsors: 449 that work with an adviser, and 116 that do not, with plan assets from under $1 million to $75 million. The research included two focus groups with plan advisers and was conducted in the summer and fall of 2015 by Greenwald & Associates.