Retirement plan reviews often miss the mark in terms of frequency and focus

ENFIELD, Conn. – Many financial advisors neglect to review the effectiveness of retirement plans with plan sponsors as often as many sponsors want, and, when reviews do take place, they often fail to focus on what’s most important, according to new research from MassMutual Retirement Services.

“Frequent, focused plan reviews are essential to assess the ongoing effectiveness of a retirement plan and to help ensure that plan participants are saving enough to retire when they reach their traditional retirement age,” said Tom Foster Jr., spokesperson and practice management leader for MassMutual Retirement Services. “It’s a clear opportunity for financial advisors to improve and build their retirement plan practices.”

Many plan sponsors say they want to review their retirement plans more often than they currently do. Nearly three in five (57%) plan sponsors want advisors to help them review their retirement plans semiannually or more often, something that only 44% of sponsors report currently takes place, according to the 2016 MassMutual Retirement Plan Review Study. However, sponsors who rely on advisors typically review their retirement plans more often than sponsors who do not use an advisor.

The study polled 565 employers that sponsor retirement plans, including 449 that worked with an advisor and 116 that did not, with retirement plan recordkeeping assets ranging from less than $1 million to as much as $75 million. In addition, the research included two focus groups with plan advisors. The research was conducted in 2015 by Greenwald & Associates.

Plan reviews can lead to improvements such as new plan designs to better meet an employer’s objectives, according to Foster. MassMutual has enhanced its plan design-related services with new educational materials to help employers address employee demographics, organizational structures, business strategy, financial obligations and participant needs. Employers can learn more about these services by contacting their relationship manager or account manager.

Any improvements to a plan should generally start with a careful review and include consultation with plan legal counsel and other experienced advisors, as appropriate, Foster said. However, when reviews do take place, many advisors and employers are not focusing on what’s most important in determining whether a retirement plan is effective, he said.

“Unfortunately, only one in four sponsors reviews its plan to determine whether employees are actually saving enough to retire,” Foster said. “This points to a missed opportunity on the part of both advisors and sponsors. We need to focus more on the effectiveness of the retirement plan and educational programs to help ensure that working Americans are saving enough to retire on their own terms.”

The research finds differences in focus between sponsors with an advisor as opposed to sponsors without an advisor. During plan reviews, sponsors who work with an advisor typically prioritize satisfaction with their plan provider. Sponsors without an advisor prioritize fees and costs. The study finds that some of the major considerations of plan review break down as follows:

Major Considerations	Advisor	No Advisor
Satisfaction with plan provider	79%	71%
Performance of investments	76%	59%
Fees associated with plan	71%	73%
Effectiveness of education and advice	50%	31%
Participation rate	45%	34%
Time and effort to administer plan	43%	28%
Whether employees are saving enough	27%	25%

“Advisors can do a world of good to help employers focus on savings, the effectiveness of education programs, and perhaps the ultimate metric: whether their employees on target to be retirement ready,” Foster said. “Participation in the plan is certainly important too. But if every employee participates but each saves only 1 percent of his or her salary, it’s totally ineffective as no one will ever be prepared to retire.”

Employees who work past the traditional retirement age band of 65-67 may cost employers significantly more for healthcare, disability and Workers Compensation insurance as well as salaries. Taking proactive steps to help ensure a retirement plan is helping as many employees to retire at the age they first qualify for full Social Security benefits can potentially reduce those costs, according to Foster.