We're in the midst of a challenging time. The spread of the coronavirus threw the markets into a period of choppiness not likely to stop anytime soon (discussed in greater detail below). As we work to help participants and fiduciaries to navigate their investments, we also want to keep our eye on longer term trends that predated the virus concerns and may very well continue throughout 2020 and upcoming years.
Alight Report: 2020 Hot Topics in Retirement and Financial Well-being
Alight produces a helpful annual survey that examines hot topics and emerging trends. Its 2020 report aligns with what many of you are experiencing. In particular, it highlighted two key trends:
The breadth and depth of financial well-being programs are expanding
This is happening at an encouraging rate. Employers that have financial wellness programs are finding that financial wellness has become even more important over the last 24 months. The now-in-the-minority number of employers that do not offer a financial wellness program are working on options for instituting one.
We anticipate that these programs will become even more valuable in the face of economic challenges caused by the coronavirus outbreak. On March 9 your employees started their work weeks with plunging stock markets, oil prices, and interest rates. More than at any time in the last decade, they're going to need a plan to feel financially secure.
Employers are taking steps to help people bridge the gap between working and retiring
This challenging transition gets lost in the process. We've focused so much in recent years on the accumulation phase, but employers - and Congress with the SECURE Act - have identified that employees need more help in how they live in retirement. A large part of this will come in the form of greater awareness of their lifetime income needs. Look for more employers to rely on the SECURE Act safe harbor in providing in-plan investment and distribution options intended to provide guaranteed lifetime income.
Invesco Report: Target-Risk and Target-Date Investment Options
Invesco's "The Forgotten Participant" study and its related commentary comes at an important time in US and global markets. The survey finds that defined contribution plan sponsors and service providers have taken positive steps in the form of plan design and default investments. It also finds a deficiency in plans that include target-date, but not target-risk, funds: participants not wanting a purely age-based solution are left to manage their own portfolios (which they don't do very well).
This research supports the growing conventional wisdom that plan participants are best-suited to have access to both age- and risk-based portfolio investment options. Invesco makes clear that it is not harshly judging target-date funds' net positive impact; it recognizes the manner in which target-date funds have provided better diversification and portfolio management to many participants. Yet at the same time, it recognizes that those thinking more deeply about their individual situations are well-served by having risk-based options.
The studies discussed above were interesting the day they were published. But they've become more interesting with each passing day, as public awareness and fear grow, and as employees continue to demonstrate their need for financial help. Alight's trends - expanding wellness and thinking more about retirement income options - are likely to pick up as a result of the coronavirus concerns. Furthermore, as those defaulted into target-date funds experience potential market drops, they may very well gain more appreciation for the value in assessing their particular risk level and investing accordingly. We welcome any questions about how QPA and Financial Fitness for Life services might help to meet the demand for those solutions.