Pessimism permeating ranks of plan sponsors, says retirement study

Anxiety is building among plan sponsors about, well, just about everything.

According to the recently released Retirement Planscape report from Escalent, the underperformance of plan investment options has ratcheted up the fear level among defined-contribution plan sponsors. Their top concerns include employees not saving enough for retirement, fiduciary issues and potential lawsuits.

“Creating a retirement plan that is attractive to employees is even more difficult in the current volatile economic and talent environment,” Sonia Davis, senior product director at Escalent, said in a statement. “In order to combat participant fears, our research supports that plan sponsors need to encourage employees to keep a long game strategy, avoid drastic withdrawals that will hinder future retirement readiness and think beyond saving by seeking help with their decumulation phase.”

“For plan providers, understanding the most pressing issues their customers face and demonstrating capabilities that provide solutions will strengthen client loyalty and pave the path to new business growth,” Davis said.

“Plan sponsors need to be more diligent than ever, in making sure their employee plans have diverse investment options. Employee education that emphasizes the importance of long-term investment strategy and dollar cost averaging is more crucial as many new employees in the workforce have never experienced a prolonged market downturn. We believe the Lifetime Income for Employees Act which was introduced this year is vital, as it will provide investment options that provide downside protection which can alleviate client anxiety during times of market volatility,” said Rikin Patel, founding partner, Kingswood Family Office, part of Kingswood U.S. Enterprise.

Nearly 4 in 10 (37%) plan sponsors expect conditions in domestic markets to worsen, up from 20% in 2021, according to the study. The step-up in pessimism about the U.S. economy primarily stems from the Ukraine war and market volatility.

Concern about underperformance of plan investment options continues to grow, with 57% of plan sponsors citing that worry in 2022, up 6% since 2021, the study showed.

“A negative market environment makes it more challenging for sponsors to implement plan improvements that might otherwise have workers feeling better about their retirement program, said Jon Chambers, managing director at SageView Advisor Group. "More optimistically, markets are inherently cyclical, so it’s possible that the worst is already in the past, and we may be reentering a period of growth.”