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Participants Increasingly Focused on Retirement Income Strategies

Increasing concern about transforming accumulated savings into a secure retirement is driving interest in income-generating vehicles via workplace retirement plans, according to new survey results.

BlackRock’s DC Pulse Survey of more than 1,000 defined contribution plan participants — including 403(b) plan participants — and more than 200 plan sponsors finds that 6 in 10 workers (62%) are worried about turning savings into retirement income. That’s up 14 percentage points from last year (48%).

Simultaneously, workers’ confidence in their progress stayed relatively static after several years of growth, with 60% saying they are on track to retire with the lifestyle they want, compared with 61%, 56% and 52% in the three previous years. Moreover, BlackRock finds that 80% of participants say income generation is a very important consideration when selecting investments and 65% agree they would save more if they could choose an option providing guaranteed retirement income.

“It’s one of the toughest financial hurdles facing workers today —  how to take hard-earned savings and create lasting income through retirement,” notes Anne Ackerley, Head of U.S. and Canada Defined Contribution at BlackRock. “Even when workers are largely upbeat over their current financial situation, the thought of a secure retirement weighs heavily.”

TDFs as a Saving and Spending Solution

To help address retirement concerns, target date funds (TDFs), according to the findings, are increasingly viewed by employers as an effective tool across the investment lifecycle. BlackRock notes that, of all options, employers are most likely to actively encourage participants to look to TDFs to support their retirement needs — significantly more so than last year (56% vs. 39%).

Nearly 4 in 10 (39%) sponsors say they have changed or added TDFs in the past 12 months – one of the largest reported changes since the survey’s launch, as sponsors increasingly consider participant outcomes.
In addition, the findings show that nearly 8 in 10 sponsors agree that “plan participants would benefit from a TDF that has a feature that generates guaranteed retirement income.” Drawing on that finding, 78% of sponsors agree that “my plan’s current TDF can be used as a decumulation vehicle for participants in retirement,” compared with 57% from last year’s survey.  

ESG Offerings Gaining a Foothold

Employers reportedly are also broadening access to investment options regarding environmental, social and governance (ESG) issues. More than a third (36%) of employers now offer an ESG investment option in their DC plans, up from 26% last year, according to BlackRock.   

Not surprisingly, Millennial participants are leading this shift, with 76% placing importance on ESG investing. Additionally, nearly half of Millennial respondents say they would save more for retirement if their plan had investment options that support the ESG causes, compared with 30% of other participants.

The survey further notes that most plan sponsors that are aware of ESG strategies believe that ESG investments lead to better risk/return profiles and can help increase plan participation. More than 80% of plan sponsors aware of but not currently offering ESG strategies are likely to consider doing so in the next 12-24 months.

Among plan sponsors offering ESG strategies, 56% currently incorporate them in the investment menu as an option with exclusion screening, 54% offer ESG as a targeted impact strategy focused on a specific issue and 51% use as a consideration within an active fund.

Additional Findings

BlackRock further notes that, with employees eager to do better, the need for participant education is clear. The findings show that 56% of participants say they would save more if their plan offered more education on planning and savings, and 62% say digital tools could help them stay on track.

As such, employers are well positioned to deliver on these needs, with many enjoying considerable “good will” among employees, the firm notes. In fact, nearly 6 in 10 participants say that they trust their employer to make good decisions about the investments offered in their plan.

Plans are taking a closer look at fixed income. Seventy-five percent of plan sponsors are reevaluating their plan’s core fixed income option to better manage risk and return, and 37% have changed or added fixed income options, the findings show.

Adding flexibility for participants was also cited as a top feature. When plan sponsors were asked about the changes made in the past year, the top update reported was adding a brokerage window (42%).
In addition, 9 out of 10 plan sponsors agree it is important to monitor or have limits in place for participants investing in company stock, with 30% eliminating or capping company stock in the last year.

Conducted by Market Strategies International, BlackRock’s survey is comprised of 228 large DC plan sponsors and 1,033 plan participants in the U.S. The plan sponsors interviewed had at least $300 million in assets, with nearly 40% of the respondents serving in benefits or HR roles, and the rest in finance, investment or business management for their organizations. The plan participants surveyed were employed full-time and participating in their employers’ 401(k) or 403(b) plan, and held at least $5,000 in assets in their current accounts.