Inflation’s ripple effect hitting 403(b)s, as plan sponsors see an opportunity

Nonprofit companies are seeing some signs of a decrease in retirement savings, after participant rates hit an all-time high for retirement savings plans in 2021, a new survey of employers has found.

The new research, released by the Plan Sponsor Council of America (PSCA) and sponsored by Principal Financial Group, has both good news and bad: retirement savings and employee financial wellness education has gone up, but concerns about inflation threaten to hold back further growth. The PSCA report found that nearly 20% of 403(b) plan sponsors in the survey saw a decrease in deferral rates after a record high rate of saving (6.9% of pay) in 2021. The analysis attributed the decrease to concerns about inflation and higher costs of living.

Inflation a growing concern

The new report took its data from a survey of more than 100 nonprofits, at a time when employers have been responding to significant new demand for financial wellness tools for employees. Hattie Greenan, director of research and communications at PSCA, said that ongoing economic concerns could continue to have an impact on retirement savings.

“Clearly, some participants are more impacted by the economy than others and we may well continue to see a decline in deferral rates into next year if energy, health care, and food costs continue to increase,” Greenan said. “The fact that savings rates were at record highs in 2021 may buffer account balances a bit as participants direct current pay towards higher living costs.”

At the same time, a strong majority—70%–were not doing anything at the time of the survey to address the impact of inflation, indicating that many organizations are taking a “wait and see” approach. The study added that 15% of respondents are providing education specific to inflation to plan members.

Some priorities for 2023

The report said that priorities have fluctuated in recent years. For example, “plan compliance/reducing fiduciary liability” was the top concern in recent years, but there’s been some variation in how plan sponsors see it: in 2020, 63% said it was their top priority, in 2022, that number dropped to 49%.

On the other hand, giving employees more resources clearly is a growing priority for nonprofits. In 2020, “enhancing participant education” was not even listed as a priority, for 2023, 43% of companies said it will be a top priority for their retirement plan. “Providing financial wellness tools” has grown as top priority as well, from 38% in 2020 to 40% in 2022. For 2023, 52% of plan sponsors say providing financial wellness tools will be a top priority.

The report said these findings fit with data from a September survey that reported a 37% year-over-year increase in plans offering financial wellness programs to employees.

“To see nonprofits placing a greater emphasis on providing financial wellness and enhancing education suggests they are taking a proactive approach to support their employees during this period of increased market and economic volatility,” said Kevin Morris, vice president and chief marketing officer of Retirement & Income Solutions at Principal. “It’s important to address concerns that often lead to diminished savings and heightened stress for workers, and we’re committed to helping organizations identify the most appropriate services for their plans.”

Related: Empower (inflation-weary) employees as they struggle to save for retirement

The survey also found that nonprofits are responding to recent regulations regarding cybersecurity as a fiduciary responsibility, noting that 42% are relying on vendor System and Organization Controls reports regarding cybersecurity while 20% are reviewing it internally or hiring an outside vendor to audit. An additional 25% of respondents were either unsure or unaware of the guidance, but two-thirds of respondents said they have a cybersecurity liability insurance policy.