Personalized Solutions Help Plan Sponsors Address Retirement Readiness

October 25, 2023 — Boston

Fresh insights featuring perspectives from large 401(k) plan sponsors on the value of managed accounts and other personalized financial wellness offerings

As plan sponsors eye solutions for retirement readiness, personalization has become a major area of focus, according to The Benefits of Personalization in Defined Contribution Plans, a new white paper issued by Cerulli Associates, with support from Edelman Financial Engines. More than one-third (36%) of 401(k) plan sponsors cite improving retirement readiness as the top priority for their 401(k) plan.

According to the research, a challenge for key decision makers at some of the nation’s largest corporate defined contribution (DC) plans is selecting the right personalized financial service(s) for their participant base. These plans typically have sizeable, diverse participant populations with varying levels of wealth, financial challenges, objectives, and preferences. Accommodating the needs of heterogenous plan participants requires programs and features that can fill in gaps left by target-date funds or other less personalized offerings. “As fiduciaries, we want to make sure the [personalized solution] delivers value and makes sense for at least some portion of our participant base,” reports the head of global benefits for an asset management firm who participated in the research.

More than half (52%) of consultant-intermediated DC plans look to managed account programs to provide participants with greater access to personalized investment advice. However, some plan sponsors seemingly underestimate the value managed account programs can deliver to participants. In conversations with Cerulli, several plan sponsors compare the investment performance of managed accounts to associated target-date fund vintages. “When evaluating whether or not to offer a managed account program, plan sponsors should look beyond the investment returns to uncover the full value that these programs deliver to participants,” says Shawn O’Brien, director. “Financial planning and wellness features, and the ability to speak with an advisor, may have a meaningful impact on participants’ financial outcomes. Nevertheless, plan sponsors may need to employ different performance evaluation approaches to quantify their impact.”

Plan sponsors regularly highlight the importance of giving their participants access to a financial professional who can help them sort through key financial dilemmas in a holistic, nuanced manner. One plan sponsor notes, “In times of stress, they [participant] call one of the advisors from our managed account program, who are very well trained, and they [advisors] help people from doing something crazy. You have to think about what that is worth to somebody. It’s not about whether you call all the time, it’s that one call that keeps you invested and saves you a couple hundred thousand dollars.” Cerulli research shows 401(k) participants value the ability to speak with an advisor when it comes to making key financial decisions. More than half of 401(k) participants prefer to speak to a financial professional over conducting the necessary research themselves or leveraging the advice of other, non-professional connections when making a change to their finances.

For the pursuit of incorporating personalized solutions, the paper recommends that plan sponsors and their consultant partners assess the broader implications of specific program features; in addition to evaluating more-technical due diligence items (i.e., investment methodologies), sponsors should consider the potential benefits of providing access to human advisors, limiting potential conflicts of interest, and providing participants with a broader range of personalized advice via value-add programs, such as financial wellness and planning.

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Note to editors

These findings and more are from Cerulli’s white paper, with support from Edelman Financial Engines: The Benefits of Personalization in Defined Contribution Plans: Analyzing Value in Managed Account and Financial Wellness Programs and Features.

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