J.P. Morgan Defined Contribution Survey Reveals Plan Participants Uncertain About Retirement Prospects

Despite improved participant confidence, more is needed to evolve and strengthen DC plans

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Sep 26, 2018, 09:00 ET

NEW YORK, Sept. 26, 2018 /PRNewswire/ -- J.P. Morgan Asset Management today released findings from its fifth survey of U.S. retirement plan participants. The 2018 Defined Contribution Plan Participant Survey revealed that while their retirement outlook has improved, nearly half of plan participants still don't feel they'll be able to retire when they want, with the savings they'll need. The good news is, participants are supportive of plan sponsors' efforts to strengthen their plans through target date funds (TDFs), especially in conjunction with automatic enrollment, automatic contribution escalation and re-enrollment.

"While it's pleasing to see that retirement plan participants are gaining confidence, the fact that nearly half of participants are still uncertain about their retirement prospects suggests that there is still work to be done. The coordinated efforts of plan sponsors, regulators and other industry stakeholders to assist participants in achieving their retirement goals must continue," said Catherine Peterson, Managing Director, Global Head of Insights Programs at J.P. Morgan Asset Management. "The survey shows that nearly three-quarters of participants are still missing their savings targets, so it's critical that plan sponsors stay focused on evolving their plans to ensure participants have access to simple, streamlined services that can guide them on a strong saving and investing path."

The 2018 Defined Contribution Plan Participant Survey canvassed 1,295 participants to help plan sponsors and their advisors stay in tune with the knowledge, behavior and attitudes of 401(k) participants. Four key themes emerged:

1. Understanding the state of the participant:
While efforts across the industry to improve retirement outcomes have led to a slightly more positive participant outlook, the survey data revealed that there is still work to be done:

Only half (52%) of participants believe they will be able to retire at their ideal retirement age, while the same percentage "somewhat" or "strongly" agree that their savings will last throughout their lifetime.
Approximately half (51%) of participants are willing to spend time planning but don't know where to start.
Nearly three-quarters (73%) of participants believe they should be saving 10% or more, but worryingly, 70% of these participants are missing their savings targets.
Despite signs of improvement, less than 40% of participants are highly confident in their ability to make key investment decisions.

2. Motivating participants to save
Plan participants generally expect employers to encourage them to save through their DC plans, however few want their employer to decide their savings rate for them. The popularity of automatic enrollment and automatic contribution escalation suggests that these initiatives are striking the right balance between providing guidance and allowing autonomy. Some key findings around participant motivation include:

More than three-quarters (78%) of participants support a combination of automatic enrollment and automatic contribution escalation as part of their plan.
80% of participants with both automatic features expect their savings to last throughout their lifetime vs. 47% of those who were only automatically enrolled.
Employer matches have the potential to be misinterpreted, with 30% viewing their contribution match as a contribution recommendation, and 18% seeing it as what their employer 'thinks they should be saving.'

3. Streamlining investment decision-making
Participant investing can be simplified by combining the offer of target date funds (TDFs) with re-enrollment strategies, where an employer notifies participants that their existing account balance and future contributions will be defaulted into the plan's qualified default investment alternative (QDIA) unless the participant opts out or makes a different investment selection. TDFs have gained in popularity among participants (88% find them appealing, including 81% of "do-it-yourself" investors). At the same time, TDFs have become the QDIA of choice among plan sponsors.

Despite this agreement, there appears to be a discrepancy between the views of plan sponsors and their participants when it comes to re-enrollment:

In a 2017 survey of plan sponsors, 24% considered but did not conduct a re-enrollment for fear of employee pushback.
The 2018 survey of plan participants revealed that 86% supported a re-enrollment. What's more, 99% of those who have gone through a re-enrollment and allowed their funds to be moved to a TDF were satisfied.

4. Understanding generational differences
It's critical for plan sponsors and their advisors to consider the distinct composition of their workforces, and the similarities and variances in motivation and behavior across age groups. The survey revealed the following comparisons across participant age cohorts:

More than half (57%) of participants under 30 believe their employer has an obligation to help them choose the right investments, compared to just 18% of those 55 and older.
Participants under 30 are most confident about what they should invest in, while those over 55 are most confident on how much they need to put away to reach their retirement goals.
Among all age groups, including those over 55, a strong majority of participants are in favor or at least neutral towards re-enrollment, automatic features and TDFs.

Key Implications for Plan Sponsors

Traditional approaches alone are not sufficient to motivate employees to save and to save at sufficient levels - automatic plan features can help plan sponsors improve saving behavior and put inertia to work for, not against, participants.
Understanding their participants' level of saving and investing know-how and being aware of their attitudes and behaviors is key for plan sponsors. By working closely with regulators, providers and advisors/consultants, plan sponsors can continue to strengthen their plans and help more participants turn their retirement resolutions into reality.
Participants of different ages vary in their saving and investing behavior and perspectives but are more alike than some may think. While younger participants may be more receptive to automatic plan features and strategies, even older participants are generally supportive of these approaches and satisfied with their experience of them.

"Re-enrollment and automatic plan features have the potential to positively impact retirement saving and investing for new and existing participants alike. While some plan sponsors have been slow to implement these strategies for fear of pushback, our survey suggests that participants are actually supportive," said Meghan Jacobson, CFA, Executive Director, Head of Retirement Insights, J.P. Morgan Asset Management. "This disconnect demonstrates that while progress has been made to improve participant confidence and knowledge, plan sponsors and their industry partners can maintain this momentum by considering these features and strategies to further strengthen their DC plans and deliver better retirement outcomes."

Methodology

To stay in tune with the knowledge, behavior and attitudes of 401(k) plan participants with respect to saving and investing for retirement, we undertook our fifth participant research study on this topic. From January 5 through January 15, 2018, we partnered with Mathew Greenwald & Associates, a market research firm based in Washington, D.C., to conduct an online survey of 1,295 defined contribution plan participants. In order to qualify for the study, each respondent had to be employed full-time at a for-profit organization with at least 50 employees, be at least 18 years old and have contributed to a 401(k) plan in the past 12 months.

Survey results have been weighted by age, gender and education to reflect the overall makeup of the general population of 401(k) plan participants. In a similarly sized, random sample survey of general population respondents, the margin of error (at the 95% confidence level) for the total population in this study would be plus or minus approximately 2.8 percentage points.

About J.P. Morgan Asset Management
J.P. Morgan Asset Management, with assets under management of $1.7 trillion (as of June 30, 2018), is a global leader in investment management. J.P. Morgan Asset Management's clients include institutions, retail investors and high net worth individuals in every major market throughout the world. J.P. Morgan Asset Management offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity.

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2.6 trillion and operations worldwide. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, and asset management. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of customers in the United States and many of the world's most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands. Information about JPMorgan Chase & Co. is available at www.jpmorganchase.com.

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co., and its affiliates worldwide.

SOURCE J.P. Morgan Asset Management