Plan Sponsors, Advisors, Not On Same Page Regarding Retirement Plan Success

By Cyril Tuohy

InsuranceNewsNet

It seems as if retirement plan sponsors and advisors to those plans have different views of how to measure the success of a retirement plan.

Plan sponsors measure success by outcomes. In other words, the overriding metric of a successful employer-sponsored retirement plan is how ready an employee is for retirement when the time comes to bid the workplace goodbye.

Financial professionals, on the other hand, prefer measuring participation rates and ensuring the plan offers an array of investment choices.

The different approaches are highlighted in a new survey of 283 sponsors of 401(k) plans conducted last September. The survey, titled “Supporting Retirement Savings,” was released by the Principal Financial Group and conducted by Brightwork Partners.

Results found that 64 percent of plan sponsors believe financial advisors are more focused on having high participant rates, and 63 percent of plan sponsors believe advisors are more focused on having an attractive fund lineup.

The perception divide suggests advisors may be more concerned with meeting the fiduciary duties of the plan sponsor than in ensuring employees build an adequate nest egg to prepare them for when they leave their employer.

“Financial professionals who focus on fees, funds and fiduciary responsibility may not be focusing enough on participant outcomes,” Tim Minard, senior vice president of The Principal, said in a news release.

Minard also said the survey shows that plan sponsors want to work with advisors who are “as concerned as they are about the end game: how well participants will be prepared to afford a comfortable retirement.”

Since advisors are typically paid by the plan sponsor, not the participant, it makes sense for advisors to concentrate on the needs of sponsors before the needs of the employee.

In addition, retirement plans that fail to meet fiduciary standards face hefty government fines and even legal action by participants, so it’s important for advisors to make sure employers sponsor retirement plans in accordance with the rules.

Yet, if participants don’t enroll in their employer-sponsored plan, or if they approach retirement with a fraction of the savings they could have put away because they were ignored by advisors, then what good is an employer-sponsored retirement plan in the first place?

Minard said the survey revealed “a clear opportunity for financial professionals to demonstrate their value.”

Employer-sponsored retirement plans, funded through payroll deductions, have become the easiest and most convenient way for private and public-sector employees to fund their own retirement.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.