DC plans are evolving: Financial wellness is now a ‘core’ component

In its fifth survey of U.S. defined contribution plan sponsors, J.P. Morgan Asset Management found that many sponsors are striving to offer expanded benefits and employee wellness programs as part of their DC plans as they increasingly work to strengthen the retirement profiles of their team members.

According to J.P. Morgan’s accompanying white paper, “Continued Progress through Partnership,” the survey shows that it is vital for sponsors to ensure that their financial wellness offerings continue to evolve as SECURE 2.0 takes root, “just as we have seen advancement and innovation in other areas of retirement benefits design.” In addition, sponsors should understand that a proactive approach and customization can help spur more favorable outcomes for plan participants. The demand for retirement income solutions also continues to grow for both participants and sponsors and seems poised to be a priority going forward, according to the paper.

The survey, which was a partnership with Greenwald Research, included responses from 788 plan sponsors earlier this year. The sponsors represent organizations that have been in business for at least three years and offer either a 401(k) or 403(b) plan to their employees in the U.S. Among the survey’s findings was that 90% of plan sponsors believe it is important to offer investments that help participants generate income in retirement. Meanwhile, only 55% of sponsors said they were a fiduciary to their plan’s organization – despite everyone surveyed being a fiduciary, according to the white paper.

“Our research shows that DC plans have become the primary retirement savings vehicle for most working Americans, and in many ways plan sponsors have risen to the occasion, however there is a clear need for plan sponsors to better understand their role as a fiduciary, with just under half aware of their responsibilities,” said Catherine Peterson, global head of insights & product marketing, J.P. Morgan Asset & Wealth Management. “We expect to see a continued emphasis on incorporating retirement income solutions into DC plans going forward, having been identified by plan sponsors as a core purpose of plans.”

The white paper emphasized that four central themes emerged from this year’s survey findings:

#1: Plan sponsors have a strong sense of responsibility for employee financial wellness

The first theme was that sponsors are feeling an increased sense of responsibility for their employees’ financial wellness – in fact, 85% of respondents said they feel a strong sense of responsibility for employee financial wellness, compared to just 59% in 2013. To help with financial wellness, more than 70% of those surveyed offer employees life insurance and approximately 60% offer disability insurance and mental health benefits. Meanwhile, a quarter of respondents offer student loan debt assistance, and 40% offer emergency savings benefits, one-on-one financial coaching and/or debt management assistance.

“Retirement income, student loan debt assistance and emergency savings programs are all being discussed more and it’s exciting to see that companies offering these types of programs see their retirement plans as more effective,” said Alexandra Nobile, vice president, retirement insights, at J.P. Morgan Asset Management. “The implications of SECURE 2.0 serve to only accelerate this trend, and we expect to see more plan sponsors taking a proactive approach to evolving their retirement benefit offering through innovative DC plan design.”

#2: Automation and customization gain momentum

The second theme is that automation and customization continue to gain momentum. For instance, 43% of sponsors offer automatic contribution escalation – an increase from 21% in 2013. However, 47% of those surveyed still do not offer automatic enrollment in their plans.

#3: Target date fund usage remains high

Theme three is that target date fund usage is high as sponsors refine their investment menu. The survey showed that about 60% of plan sponsors offer a TDF in their defined contribution plan, and 76% of those respondents with a qualified default investment alternative (QDIA) say it is a series of TDFs. About three out of four of those surveyed said that they feel “extremely confident” or “very confident” that their participants have an appropriate asset allocation.

#4: Retirement income has become a core purpose of DC plans

The final theme is that retirement income has become a core purpose of defined contribution plans. Not only did nine out of 10 respondents “strongly agree” or “somewhat agree” that offering investments that help participants generate income in retirement is important, but six out of 10 said they believe that defined contribution plans should be vehicles for retirement income generation. Of the sponsors whose plans do not have a retirement income option, 45% said they are either “extremely likely” or “very likely” to consider offering one in the upcoming year.

Related: Benefits forecast for 2026: Growing demand for retirement & financial well-being benefits

Only 35% of surveyed sponsors say that they use the recommendations of their retirement plan advisors in their investment selection criteria.

In light of this, the white paper noted, “This may represent an opportunity for financial professionals to play a bigger role in helping plan sponsor clients fulfill their fiduciary duties, beyond examining performance and fees, to help make appropriate decisions for their plans.”