J.P. Morgan’s latest surveys of plan sponsors and plan participants reveal three key areas where enhanced partnership between the two groups can help improve retirement outcomes for employees.
Meghan Conklin, Vice President, Retirement Insights, discusses how financial advisors can help sponsors and participants alike put these new research findings to work.1
The benefits of partnership
Retirement planning is a distinct challenge for all involved. Plan sponsors may not fully understand participants’ financial priorities and concerns, including their personal finances beyond the workplace. Employees are often short on investment experience. All parties must contend with ever-changing market conditions—and the inherent difficulty of managing investments with far-off time horizons.
Yet, as our research reveals, there are powerful points of potential alignment that can be mined for the benefit of all stakeholders. Here are three to consider:
1. Build emergency savings
Current state: Only 22% of plan sponsors offer emergency savings benefits to employees.
Yet, when plan participants are faced with a personal financial crisis, a significant number tap into their retirement savings—and suffer long-term consequences. Our research shows:
- Only 61% of participants surveyed have at least three months of living expenses set aside in a savings account. This is a marked decline from 2021, when 73% of survey respondents said they had emergency savings. Inflation and higher cost-of-living expenses in recent years are likely the cause.
- Nine in 10 employees experienced spending rate spikes of 25% or more over their baseline spending in the prior 12 months that they were unable to cover with funds from their income. As a result (see slide 22 in our Guide to Retirement):
- 48% increased their credit card debt
- 17% borrowed from their retirement plans
- 13% decreased retirement plan contributions to raise cash
What plan participants want: Seven out of 10 (69%) plan participants surveyed view the prospect of having an employer-sponsored emergency savings account as extremely or very appealing.
The good news is plan sponsors have the toolset to address this challenge—either with in-plan emergency savings funds or out-of-plan options. Having access to a benefit of this type could potentially offset employees’ use of loans, credit cards and/or 401(k) savings during periods of financial stress.
The opportunity for advisors: Help plan sponsors and participants alike understand how the risks of not having emergency savings can easily spill over into other areas of financial wellness, such as retirement savings.
2. Deepen employee engagement
Current state: Only 32% of sponsors answered they are extremely/very confident their participants’ retirement accounts have an appropriate asset allocation.2 This may be because the plans inspiring an elevated level of confidence include a Qualified Default Investment Alternative (QDIA)—which, in nearly every case, takes the form of a target date fund (TDF). Our research shows these sponsors:
- Added QDIAs and TDFs to their plans because they were concerned participants lacked the time and investment knowledge to manage appropriate, goals-based asset allocations for retirement planning
- Found that offering age-appropriate, risk-adjusted asset allocation strategies resonated with participants
Notably, the overwhelming majority of sponsors don’t give employees an opportunity to re-enroll in their retirement plan. Yet, giving participants a chance to review and re-affirm their investment selections to ensure they are still appropriate is generally a helpful way to improve retirement outcomes.
Similarly, re-enrollment can be an opportunity to automatically shift employees’ retirement funds into the plan’s QDIA and/or raise annual contribution rates to higher default options—unless participants actively opt out.
It’s possible many sponsors don’t fully understand the benefits of re-enrollment—for themselves as well as for their participants. Significantly, re-enrollment/shifting investments into a TDF can:
- Be a powerful way to increase diversification and align participant investments with professionally managed asset allocation strategies and glide paths
- Help sponsors feel more confident in the quality of participant allocations and encourage employees to stay on track for retirement goals
What plan participants want: 88% of the participants we polled say they favor or are neutral to the idea of re-enrollment—underscoring that sponsors’ need not fear employee pushback.
The opportunity for advisors: Help plan sponsors to see how re-enrollment/engagement can be a critical stepping stone to employees’ long-term financial security. Furthermore, by better understanding/introducing QDIAs and TDFs into their plans, sponsors can feel more confident employees are correctly allocated—thereby strengthening their relationships with participants.
3. Create a bridge to retirement income
Current state: In general, the majority of plan sponsors favor their companies doing more to help employees transition to retirement when the time comes:
- 79% believe their company should offer participants a way to generate income in retirement, and 61% are at least somewhat likely to consider offering retirement income options in the coming year
- 53% of sponsors said their plans offer income options for retirees, but most of these are traditional accumulation-focused options—which do not necessarily address the complexities that come with decumulation, such as the need to secure income over time and also protect against longevity risk
What plan participants want: A resounding 90% of surveyed participants want their plan to include a guaranteed retirement-income option.
Like the majority of plan sponsors, who want to strike a balance between flexibility and control when selecting an income solution option for their plan, participants want to choose carefully when it comes to future income options.
The opportunity for advisors: Help plan sponsors understand and carefully choose among available income options to find the right fit for their plan’s participants and fulfill their fiduciary responsibilities with care.
Learn more
The information in this article, along with the in-depth data in our Guide to Retirement, aims to provide sponsors and participants with insights into retirement planning and examines how financial advisors support sponsors by putting key insights from our research into practice. For additional guidance, we invite you to take a closer look at J.P. Morgan Asset Management’s Plan Sponsor Research and Plan Participant Research.