BY JOHN SULLIVAN
SEPTEMBER 06, 2023
INDUSTRY TRENDS AND RESEARCH
Little surprise, participant engagement sits atop the list of short-term priorities for plan sponsors. At the same time, high-profile issues like retirement income, discussed ad nauseam among financial professionals, rated lower among those offering work-based plans.
More specifically, 27% of plan sponsors listed retirement income as a top priority, but with more focus (37%) from DC plans with greater than $5 billion in AUM.
“I think there’s been a lot of coverage around the retirement income stuff,” David Blanchett said. “It’s getting a lot of press, and it’s important, but it’s more of something that’s coming in the future. Given the priorities, it’s really more of helping folks right now. That’s still kind of top of mind versus focusing on solving this retirement paradigm that is incredibly complex with lots of different competing solutions.”
Blanchett, Managing Director and Head of Retirement Research with PGIM DC Solutions, remarked on the firm’s survey released earlier this year, The Evolving DC Landscape.
While happy there’s a bigger focus on financial wellness, plan design, and the investment menu, he expressed surprise and concern that the plan’s qualified default investment alternative (QDIA) ranked last on the priority list.
“I wish it wasn’t last because I like the idea of moving towards more personalized solutions,” he said. “Maybe we’re not there yet. I think you can improve allocation more than just the target-date funds, but I get it; they’ve been very successful and greatly improved participant decisions.”
Yet, ranking ESG second to last decidedly did not surprise him, something he called a “hot mess these days.”
Referencing the recent American Airlines lawsuit, in which a pilot alleged the carrier breached its fiduciary duties in violation of ERISA by investing millions of dollars of employee retirement savings in ESG investments, the liability makes it unclear if it’s worth it—at least at the moment.
“You can do things like ESG integration, things that aren’t as explicit as kind of like adding a super-ESG focused fund, but a lot of plan sponsors and consultants are a bit concerned that if we have a change in the White House in 2024, and if certain candidates win the day, it could be a very different perspective on whether or not we should even be considering any aspect of ESG in 401(k) plan.”
With the seesaw policy views among Democrats (ESG friendly) versus Republicans (anti-ESG), he added that ESG is less of a focus among litigation-anxious companies.
“There are folks who shall remain nameless that did surveys suggesting that 90% of participants are actively clamoring for ESG. That is unequivocally false. If you look at the actual decision, participants just don’t care about a lot of that stuff. In my research, utilization of ESG among participants was lower than random chance from just flipping coins.”
The survey noted that priorities differ depending on the plan sponsor’s role: Plan and investment costs ranked as the top priority (59%) for respondents who work in Treasury/Finance, while respondents from Human Resources ranked financial wellness as their second highest priority.
“This suggests that employers are focused on providing more holistic services that not only span retirement but encompass financial planning, budgeting, and increased financial literacy—all areas that improve retirement readiness,” PGIM concluded.