INDUSTRY TRENDS AND RESEARCH
Even before the COVID-19 pandemic, the percentage of remote
U.S. workers was gradually increasing, presenting unique challenges to
employers, especially in relation to helping employees prepare for retirement.
“While employers may have historically relied on home office
presentations and group meetings to educate participants about the retirement
plan, as well as about things like saving and investing, engaging remote
workers as part of the process will become more difficult,” write Morningstar’s
David Blanchett, Dan Bruns and Sean Klock in “Out of Sight, But Not Out of
Mind.”
Moreover, the researchers note that remote employees may not
have the same level of access to advice and might be less interested in
attending yet another online meeting, which has come to be known as “Zoom
fatigue.”
Consequently, one potential way for employers to expand the
retirement plan benefits package in an environment of increased remote workers
is to consider adding managed accounts to their DC plan, the report
suggests.
Local vs. Remote
According to the Morningstar analysis, remote workers invest
differently from local workers in 401(k) plans, where remote workers are less
likely to be interested in using default investments, in particular target date
funds, and more likely to be interested in a personalized advice option such as
managed accounts.
Additionally, the study notes that there is a growing body
of research demonstrating that participants who use managed accounts tend to
save more for retirement, both when the service is offered as an opt-in and
opt-out. Managed accounts participants also tend to reduce allocations to
employer stock and have more efficient portfolios, among other potential
benefits.
The researchers also found that there is a pronounced difference
in the demographics between remote and local workers. Using a novel dataset
comprised of 39 401(k) plans and 115,657 participants classified as “local” and
“remote,” they identified differences in the usage of the plan default
investment and opt-in managed accounts. They found that remote employees are
7.4% less likely to use the plan default investment and 1.3% more likely to use
managed accounts, which, they note, is a relative increase of 33.2%.
They also discovered that remote workers tend to be older
with higher salaries, higher balances and higher deferral rates.
Still, while access to retirement managed accounts has been
growing over recent years, the authors observe that only 52% of plans currently
offer the service, citing data by Callan.
With the findings suggesting that remote workers invest
differently in 401(k) plans than local workers, the researchers submit that DC
plans that expect an increase in remote workers may want to consider adding a
managed account option (or a similar advice option), since these can typically
be added at no cost to the plan sponsor.
The study also observes that managed account fees have come
down significantly since the Pension Protection Act was enacted and are
increasingly being adopted as the default investment by plan sponsors.
What’s more, the researchers note that an emerging way to
use managed accounts as part of the default investment is in a “dynamic
default” structure—also called a hybrid or dual default/QDIA—where some
participants, such as those under a certain age, would be defaulted into a TDF,
while other participants, such as those over a certain age, would be defaulted
into managed accounts.
Additional considerations would include providing remote
workers with not only the right kinds of investment services but also revising
the way benefits are provided and communicated via remote group meetings, they
emphasize.
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