RETIREMENT INSIGHTS

Driving well-being through
retirement preparedness

Apr 1, 2019
By BlackRock
DC pulse survey thumbnail

Participants want more from their retirement plans and plan sponsors are looking to deliver. This year’s survey offers key takeaways for plan design, investments and in-plan retirement income options–and reveals the surprising link between retirement planning and current well-being.

BlackRock’s annual DC Pulse Survey engaged with 228 plan sponsors and 1,033 DC plan participants on the current state of defined contribution.

Participant snapshot

Average retirement account balance by age

Unpredictable markets temper
participant confidence

Recent market volatility may have made participants less bullish on the market in comparison to previous years. The percentage of participants who believed their investments performed up to expectations is down for the first time since 2016.

% who feel on track because investments are performing up to expecations

Source: S&P 500, 2016-2019; BlackRock.

76% of plan sponsors anticipate market volatility in 2019, and 2 in 10 participants say they would move into more conservative investment options if they experienced volatility.

 


The connection between retirement saving and well-being

This year, BlackRock’s DC Pulse Survey explored the connection between retirement planning and employee well-being. We found that preparing for retirement creates a greater sense of well-being today – even if retirement is decades away. “Having enough money to live the life I want” ranked second to good health in factors that contribute to participant’s well-being.

9 out of 10 participants agree

Financial worries undermine
well-being

On the flip side, financial and retirement concerns can be a strong drag on perceived well-being. Among the key factors provoking participant worry about their overall well-being are:

Financial worries undermine well being one
Not making enough money to live the life I want.
Financial worries undermine well being two
Not having enough money to take care of an unexpected emergency.
Financial worries undermine well being three
Not being on track for retirement.

There’s no question:
Plan sponsors want to help

Plan sponsors strongly agree that their role in building the overall financial well-being of their employees extends beyond preparing them for retirement.

93% of plan sponsors agree:

What plan sponsors say:

What plan sponsors say

Taking control of their paycheck: Rising focus on retirement income

Compared with last year, participants are much more concerned about their ability to transform their accumulated savings into a secure retirement.

Participants are increasingly concerned about retirement income

Plan-sponsors-agree

Retirement income concerns are driving interest in income-generating vehicles via workplace retirement plans. Eighty percent of participants say income generation is a very important consideration when selecting investments, and 65% agree they would save more if they could choose an option providing guaranteed retirement income.

Participants want help with the income challenge–and they are looking to sponsors to provide it

Participants-want-help-with-the-income-challenge

Plan sponsors are responding with investments and guidance

The 2019 DC Pulse Survey saw a significant response from plan sponsors on the retirement income challenge, with 96% agreeing that providing secure income-generating options can help support employees with retirement planning.

Target date funds (TDFs) are drawing most of the sponsor interest, with income capability a key consideration

Many plan sponsors are looking to target date funds as a solution, with 81% agreeing that plan participants would benefit from a target date fund that has a feature that generates guaranteed retirement income. These trends linking target date funds with retirement income have grown meaningfully year over year.

Plan sponsors agree:

Plan-sponsors-agree-01-02-03

Increased use of retirement income planning tools

Plan sponsors also are working to help participants understand how much they can withdraw from their retirement savings to support an income stream. Nearly seven in 10 say they are providing tools focused on retirement savings withdrawals, up considerably from last year, with another 22% planning to offer these tools in the future.

Increased-use-of-retirement-income-planning-tools

Fine-tuning investments

Ninety five percent of plan sponsors review how participant investments are allocated at least once a year, with an eye on protecting participants from volatility. Plan sponsors continue to look across the investment lineup – and are considering active as well as indexed vehicles – for opportunities to strengthen their plan.

Reflecting concerns about
portfolio resiliency:

Reflecting-concerns-about-portfolio-resiliency

Active target date funds may
offer advantages:

Active-target-date-funds-may-offer-advantages

Plans are taking a closer look at
fixed income

75% of plan sponsors are re-evaluating their plan's core fixed income option to better manage risk and return, and 37% have changed or added fixed income options.

Adding flexibility for participants

When plan sponsors were asked about the changes made in the past year, the top update reported was adding a brokerage window (42%).

Putting guardrails around
company stock

Nine out of 10 plan sponsors agree it is important to monitor or have limits in place for participants investing in company stock, with 30% eliminating or capping company stock in the last year.

 


ESG gaining a foothold in
DC plans

Environmental, social and governance (ESG) criteria is increasingly important, marking a shift in expectations among participants regarding the intent of their investing.

Esg-gaining-a-foothold-in-dc-plans

Millennial participants are leading this shift, with 76% placing importance on ESG investing. Additionally, almost half of millennials say they would save more for retirement if their plan had investment options that support the environment and social causes, compared to 30% of other participants.

More plan sponsors are embracing
ESG strategies

More-plan-sponsors-are-embracing-esg-strategies

Most plan sponsors that are aware of ESG strategies believe that ESG investments lead to better risk/return profiles and can help increase plan participation. More than 80% of plan sponsors aware of but not currently offering ESG strategies are likely to consider doing so in the next 12-24 months.

Among plan sponsors offering ESG strategies, 56% currently incorporate them in the investment menu as an option with exclusion screening, 54% offer ESG as a targeted impact strategy focused on a specific issue and 51% use as a consideration within an active fund.


Shaping plan design: setting the course for saving

After investment performance, plan sponsors measure plan success by their employees’ contribution rates. More than ever, plans understand the impact plan defaults can have on participants. For example, 89% of plan sponsors agree that setting default contribution rates/escalation maximums too low can actually reduce the amount that participants would save otherwise. Additionally, 94% agree it would be helpful to advise participants on the ideal amount of savings at various age-related milestones.

Plan sponsors believe the following strategies support employees with retirement planning:

Shaping plan design

Making a difference: the need–and opportunity–to boost
plan engagement

Seventy percent of participants feel that they should make more effort to understand the investments in their plan. Among millennials, the number jumps to 78%, significantly higher than for all other participants (66%).

Participants may increase contributions with more support

Participants-may-increase-contributions-with-more-support

The participant survey also uncovered potential gaps in plan communications efforts, as 37% disagree that their employer’s communications help them understand the benefits of their DC plan, and half (50%) disagree the communications help them decide how to manage their retirement savings.

Target date funds can improve participant outlook

Participants invested in a target date fund report notably higher confidence, versus other participants, in their retirement preparedness and overall well-being.

 

Target-date-funds-can-improve-participant-outlook

Offering a diversified investment vehicle is especially important for newer investors, with millennials more likely to use TDFs than any other generation of participants.

Despite these benefits, plans may need to provide more education around their target date fund offering, as one-third of participants are not sure or aware of what a target date fund is.