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 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," says 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 percent) plan sponsors want advisors to help them review their retirement plans semiannually or more often, something that only 44 percent 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, says 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 says. 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 says.
"Unfortunately, only one in four sponsors reviews its plan to determine whether employees are actually saving enough to retire," Foster says. "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 major considerations of plan review break down as follows:
