80% of plan sponsors rely on advisors, as retirement landscape becomes more complex

As financial, regulatory and retirement landscapes grow more complex, so do the needs of 401(k) plan sponsors – 80% of whom leverage consultants to help maintain competitive benefits, engage employees and fulfill fiduciary responsibilities, according to Morgan Stanley’s 2024 Retirement Plan Survey. And with retirement planning support and financial advice among the most in-demand employee financial benefits, plan sponsors are seeking a greater breadth and depth of solutions.

The survey indicates a shift in plan sponsor preferences and attitudes toward investment product offerings and employee education and engagement. Nearly half of plan sponsors are now considering investment managers who “take on more fiduciary responsibility” type of manager. They are also focused on expanding investment options, with 41% now including retirement income solutions. And with educating plan participants more important than ever, many plan sponsors are outsourcing—with 47% relying on their consultants to provide education resources.

“As institutions juggle competing priorities, they’re finding it strategically important to build the right team and bring the right combination of expertise and resources to the table,” said Jeremy France, Head of Institutional Consulting Solutions at Morgan Stanley. “Having a trusted Financial Advisor or consultant to help guide plan management and take on fiduciary duties can help free up plan sponsors to ensure they can deliver stronger support for both their companies and participants.

“Part of the shift towards having investment managers take on more fiduciary responsibilities … can also be attributed to a desire to reduce the workload on executives and transfer maximum investment liability under ERISA. Additionally, the ability of 3(38) managers to make immediate investment decisions helps in managing risks more effectively and ensures that retirement plans are more adaptive and responsive to market changes.”

Amid ongoing pressure and increased complexity, plan sponsors are actively finding new ways to align their retirement plan with the needs of their employees and the opportunities in today’s markets.

Retirement benefits remain essential for attracting and retaining employees, but as markets grow more complex, so do demands on defined contribution (DC) plan sponsors to help employees prepare for retirement. To compete, plan sponsors are under pressure to offer attractive benefit packages that address myriad employee needs and business demands.

“Amid a more complex financial landscape and heightened competition for talent, we are seeing a convergence of several trends in the retirement space,” said France. “Workplace participants are seeking more options and support as they face increasing longevity and unpredictable financial markets, and companies offering retirement plans are working to meet demands across employee demographics on tight margins. Retirement benefits that address diverse employee needs can be a key differentiator when attracting and retaining skilled workers. All these factors add pressure for plan sponsors to offer more attractive retirement benefits.”

Plan sponsors’ top-ranked concerns for a 401(k) include:

• Maintaining a competitive benefits program: 17%
• Helping employees understand the 401(k) plan: 12%
• Fulfilling fiduciary responsibilities (limiting liabilities): 12%
• Helping employees save enough for retirement: 11%

Broader array of investment options

Most retirement plan sponsors are adding or have added target date funds with guaranteed payouts (71%), multi-asset strategies (65%), and hybrid default investment options (56%) to their offerings. Currently, 64% offer managed accounts, with another 22% planning to do so. And despite initial hesitation, 41% of sponsors now provide retirement income solutions—with an additional 44% intending to introduce this option to help workers turning savings into income post-retirement.

Related: Rallying around retirement income: Advisors are educating plan sponsors

“As retirement plans evolve to offer a broader array of investment options and strategies, participants face more sophisticated choices and more complex personal needs,” said France. “Effective education helps ensure they understand their options, make more informed decisions, and better navigate and use their plan features—while also helping to lighten the lift for plan sponsors. Additionally, as regulatory environments and market conditions change, ongoing education helps participants stay informed and engaged, reducing the risk of costly mistakes. With 85% of sponsors providing online planning tools and 74% offering account analysis tools, it’s clear that robust participant education is vital for the success of retirement plans and the financial security of employees.

“Additionally, the wave of participants that are entering retirement are increasingly relying on defined contribution assets as their primary source of retirement savings. These savings are delivered in the form of one lump sum asset value which ultimately requires more intentional action from participants when thinking about ‘decumulation’ than defined benefit plans which generally provided benefits in the form of monthly income. This shift means participants approaching retirement are seeking more education to support this important life transition and often looking to their employer as a trusted source of this information.”

Participant education

Given so much complexity in today’s retirement plans, educational materials and other tools to engage participants are very important to the success of retirement plans, especially when adding new solutions. The top three popular tools provided through a 401(k) include:

• Online retirement planning tools (85%)
• Online account review and analysis tools (74%)
• Written education content (73%)

Consultants and investment advisors are now the most common source for participant educational resources, with nearly half of plan sponsors turning to their consultants (47%) to provide these services. This trend is expected to continue as consultants increasingly incorporate participant education into their offerings. Online tools are a favorite format, but nearly half of sponsors also offer live training, either online or in-person.

Many plan sponsors identified participant understanding and involvement as key barriers to adding retirement income solutions to their plans, stressing the need for education resources.

Certain plan design elements are key to achieving success, according to plan sponsors surveyed:

• Matching contribution: 67%
• Quality of investment lineup: 35%
• Minimizing investment fees for participants: 33%
• Auto-enrollment: 30%

“Retirement plans are adapting to address both company and employee needs, and our survey results show that it’s not just about improving financial results, but about doing what’s best for the future,” said France. “Plan sponsors are looking for a variety of solutions to help them maintain competitive benefits, foster employee understanding and fulfill fiduciary responsibilities, but there’s no one-size-fits-all recipe. Instead, we believe that it’s only through tailored guidance that organizations can find the right blend of support, investment options and education to unlock the full impact of their plans.”