The COVID-19 crisis has had a substantial impact across all social and economic sectors, including defined contribution (DC) plans. The environment in which many plan sponsors operate today — running their businesses, their benefits and their retirement plans — is volatile, and will continue to be so for the near future.
In mid-May through early June of 2020, the Secure Retirement Institute® (SRI®) surveyed DC plan sponsors about the impact the pandemic has had on their own companies, their benefits programs and their DC plans.
The crisis has had at least some impact for the majority (54%): most commonly, employers are operating at reduced capacity and smaller companies (measured by number of employees) are more likely than larger employers to be closed, at least for the time being.
Many plan sponsors are considering changes to staffing and/or compensation, most commonly to staffing practices or levels. Changes in either staffing or compensation — or both — will almost certainly affect retirement plan metrics such as participation and contribution rates.
More than a quarter of companies (26%) are putting off decisions about retirement benefits, at least in the near-term, because of the outbreak. Larger companies are more likely to report that they are holding tight on benefits decisions.
“At the moment, few plan sponsors are thinking about making a recordkeeper change in the wake of the crisis, suggesting that providers can continue to reinforce their value in the near term,” says Deb Dupont, associate managing director, SRI Institutional Retirement Research.
In response to the pandemic crisis, more plan sponsors say they are communicating more frequently with employees rather than evaluating investments or adding advice options in the short term. Only half of sponsors are reevaluating plan investments, reinforcing the value from a fiduciary standpoint.
When it comes to matching contributions, 10% of plan sponsors have eliminated their matching contributions; of those with a remaining match, 7% have reduced it, and 19% are considering a reduction.
“Plan design changes — and their implications on plan and employee results — should be informed by consultation with advisors and/or recordkeeper representatives because making these changes have impacts on participant results and plan success measurements and metrics,” Dupont said.
SRI research reveals sponsors are generally satisfied with the service they are receiving—particularly in this new environment—from recordkeepers (68%) and advisors (66%). In addition, more than 75% say they are satisfied with the communications they and their employees receive from recordkeepers.
A good way for recordkeepers to distinguish themselves from the competition is to strengthen their communications efforts, emphasizing virtual, long-distance capabilities. As plan sponsors look ahead, they realize they will need greater virtual engagement and enrollment support from their recordkeepers.