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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.

Get the full white paper "Defining Retirement Success for Defined Contribution Plan Sponsors: Begin with the End in Mind."

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