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3 Reasons Employer-Sponsored Retirement Plans Can Be Beneficial

David Blanchett, Morningstar Investment Management LLC


Employer-sponsored retirement plans have long been a crucial driver of retirement readiness at the individual level. In fact, many plan sponsors are well-positioned to offer solutions that may be better than the ones their employees might find on their own.

There are three main reasons for this:

  1. Plan sponsors can often create customized solutions. Where a person works and what he or she does for a living affects the retirement need. Employers typically know their people. And with the help of consultants and defined-contribution plan experts, employers can create customized solutions that can help meet their employees’ needs.
  2. Employers can help drive down fees. Because of economies of scale, employers – particularly larger employers – are often well-positioned to offer lower-cost retirement benefits compared to those available at the individual level. This can help drive down fees on both the investments themselves and the financial advice.
  3. Employer-sponsored retirement plans can have default and match policies. Defaults in retirement benefits can nudge individuals, who might not save on their own, to establish retirement savings. And for participants who have access to an employer match, this typically equates to higher savings rates than they would achieve from individual deferrals alone.

While plan sponsors play a significant role in retirement outcomes, retirement is highly personal. Two employees with the same age and the same job may appear to have identical investing goals and needs in retirement. But a closer examination may reveal that that’s not the case. Factors such as marital status, housing, and lifestyle needs can all contribute to these potential differences.

With the rise of the defined-contribution plan, participants are largely left to figure out how to prepare for retirement themselves. Regardless of the individual’s capabilities, leveraging employer-sponsored retirement plans can help.

Please see below for an important disclosure.

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Important Disclosure

Morningstar Investment Management LLC is a registered investment adviser and subsidiary of Morningstar, Inc. The Morningstar name and logo are registered marks of Morningstar, Inc. Opinions expressed are as of the date indicated; such opinions are subject to change without notice. Morningstar Investment Management and its affiliates shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use. This commentary is for informational purposes only. The information data, analyses, and opinions presented herein do not constitute investment advice, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. Before making any investment decision, please consider consulting a financial or tax professional regarding your unique situation.

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