Sponsors Upping Their Fiduciary Game

They are focusing on their fiduciary responsibilities by moving to lower-cost investment options.
Due to regulatory uncertainty and increasing litigation from plan participants, retirement plan sponsors have become more proactive about their fiduciary responsibilities, Deloitte found in its Annual Defined Contribution Benchmarking Survey, based on a survey of 240 sponsors. Sponsors are seeking out lower-cost investment options, moving from revenue-sharing to direct fees and simplifying their investment lineup.

More than one-third, 35%, of sponsors are conducting retirement readiness assessments that look at what percentage of a participant’s final income is on track to be replaced in retirement. This is up considerably from a mere 12% in 2013. Sixty-six percent of sponsors want providers to enhance their websites and tools to help them determine where they should concentrate their education efforts.

Sixty-five percent of sponsors target their communications messages based on demographics, while 54% use activity-based and 45% use behavior-based communications. As to what they are trying to achieve with these communications, 74% of sponsors said it is to encourage participants to increase their savings rates or opt into automatic escalation. Fifty-four percent said it is to provide investment education and to encourage participants to use recordkeeper tools. Sixty-five percent of sponsors use some form of an automatic solution, be it auto enrollment, escalation or managed accounts.

Ninety-three percent of sponsors offer either a company match or a profit-sharing contribution. Fifty-four percent do a true-up of their match at the end of the year for employees who reach the maximum compensation limit or who hit the 401(k) limit before receiving the maximum possible match, up from 45% in 2015.

Asked why their employees participate in their retirement plan, 41% of sponsors said it is to take advantage of the company match, and 31% said it is to save for retirement. Sixty-two percent of sponsors said their retirement plan helps them retain employees, and 74% said it is an effective recruiting tool. Asked why employees do not participate in their plan, 28% said it is due to a lack of awareness or understanding, and 7% said it is because of the uncertain economy and job market.

“As contribution and investment decisions move from the hands of finance departments to individual participants, the expertise of plan sponsors has shifted from a financial management role to a keen attention to their fiduciary oversight role,” says Stacy Sandler, a principal with Deloitte Consulting. “By acting in the best interest of plan participants, plan sponsors are offering holistic tactics to support participant financial wellness and focusing on simplifying the plan offerings. A critical component of that is making sure sponsors better educate employees on options and help them to fully utilize the financial tools and resources available to them.”

Deloitte’s full report can be downloaded here.