401(k) plan sponsors are ‘highly satisfied’ with advisor expertise: Fidelity

“There appears to be a disconnect between the perception and reality of employee retirement readiness among plan sponsors,” said Dalton Gustafson, Head of Intermediary Investment Client Group at Fidelity Investments. “However, advisors can serve as a bridge to address this gap, helping plan sponsors—and in turn, employees— be better prepared for life in retirement.

“Advisors play a crucial role in helping plan sponsors create actionable plan design changes to enhance employees’ retirement prospects. For example, as our study shows, advisor-led plans are more likely to adopt automatic enrollment, enhance matching contributions, and introduce new enrollment strategies.”

Advisors can help “improving participant outcomes, educating on plan design changes, and being available and present to sponsors and participants when it comes to retirement planning,” said Gustafson.

Not only do 90% of plan sponsors use an advisor for plan sponsor consultation and management, but 80% are satisfied with the plan achieving its goals, up from 74% in 2023, according to Fidelity’s 15th annual Plan Sponsor Attitudes Study, which included plans with at least 25 participants and $3 million in assets.

In addition, 31% of advised plans are more often “very satisfied” with the plan achieving its goals (v. 18% of non-advised), and 78% of sponsors said their plan advisor provides good value.

The top reasons plan sponsors meet with advisors are to educate them about their administrative procedures: 40% said they helped with fiduciary responsibility, while 38% said they discussed lowering costs.

“Plan sponsors are expecting more from their advisors in terms of needs,” said Gustafson. “One of the biggest learnings from our data is that there’s a clear relationship between the combined value of specialized expertise and plan satisfaction. Two data points stick out to me from the study: Nearly 50% of surveyed sponsors report that it is ‘very important’ for advisors to provide guidance on health savings accounts – a 21% jump from 25% in 2023. Additionally, 81% of plan sponsors said plan advisors should be allowed to work with employees outside their respective plans to support their broader financial planning needs.”

The Fidelity study, which highlights how evolving advisor expertise is meeting sponsors’ expanding needs and, in turn, driving positive plan results and record satisfaction amongst plan sponsors, surveyed 1,174 employers offering retirement plans using a wide variety of recordkeepers, not just Fidelity.

“We’re observing a clear relationship between the combined value of specialized expertise and plan satisfaction, with the catalyst being advisors evolving and engaging beyond the retirement plan,” said Gustafson. “Plan sponsors are only expecting more from their advisors, and we certainly don’t see that trend slowing. In fact, our study showed that sponsors are meeting with prospective advisors to merely remain informed on other services being offered, signaling the need for advisors to not only be knowledgeable, but understand how each sponsor perceives value and taking steps to tailor their approach.

Advisors are providing value by engaging beyond the 401(k), driving top-line advisor satisfaction from plan sponsors and better positioning employees for retirement: 81% of sponsors are highly satisfied with their advisor, up from 63% in 2019 and 76% in 2023.

“Some of the advisor touchpoints in engaging with plan participants beyond the retirement plan include promoting financial wellness benefits, educating about HSAs, and advising on student debt management,” said Gustafon.”These efforts ultimately drive top-line advisor satisfaction from plan sponsors and better position employees for retirement.”

Perspective on investment menus

As advisors adjust to meet the evolving needs of plan sponsors, investment menus have also evolved to enhance retirement planning for employees. In the past 12 months, nine out of 10 surveyed sponsors made changes to their menus, including:

• Target date funds: Advisors play an important role in the evaluation and selection process for target date funds. For fund managers overseeing these investments, fund manager access and performance are key to plan sponsors. One out of four sponsors (26%) shared that hearing directly from the target date investment manager and being able to ask them questions was an important factor in selecting a target date manager. Performance (22%) and advisor/consultant recommendation (19%) were also important. Additionally, plan sponsors value performance over cost when it comes to target date funds. Nearly 60% of sponsors indicated a preference for a target date investment option that is more expensive but has historically delivered better performance net fees, compared to 41% who prefer less expensive options with lower performance net fees.
• Collective Investment Trusts: CITs also hold significant value in investment menus. Thirty-two percent of surveyed sponsors added this investment vehicle in the past year, and 32% plan to further increase the number of CITs available on menus this year.

Retirement readiness

Eighty-two percent of plan sponsors are optimistic their retirement plan benefits best position employees to successfully save for retirement—a 10% increase from 2023. Despite the challenging and unpredictable economic environment, 78% of plan sponsors consider automatic enrollment and company matches as effective tools in long-term retirement planning.

Related: Beyond 401(k) Day: How advisors can encourage plan sponsors, participants to take action

However, despite the plan sponsor’s optimistic view, the survey revealed only 50% of employees are retiring on schedule (defined as age 67), indicating significant challenges in terms of retirement readiness. Twenty-three percent of employees retire later than expected.

According to over 70% of plan sponsors surveyed, these delays are primarily due to insufficient retirement savings.

The survey findings indicate advised plans are more likely to establish a defined retirement income replacement goal (82% v. 66% for non-advised plans). Additionally, 83% of sponsors express satisfaction with advisors who actively promote retirement plans to employees.