As 401(k) plans take on a greater role in delivering retirement security, the central question for plan sponsors is no longer how many options a plan offers; it is whether the plan is designed to help people save, stay invested, and turn balances into real-world outcomes.
We recently met with Principal Financial Group colleagues Brant Wong, Head of Retirement Solutions, and Teresa Hassara, SVP Workplace Savings & Retirement Solutions, to discuss why plan design has become one of the most important drivers of participant behavior and retirement outcomes. At the center of our conversation was a simple but consequential idea: better outcomes are often driven less by adding complexity and more by designing plans around how people actually behave.
Teresa: Because for a lot of workers, the 401(k) has become the main retirement savings vehicle. Sponsors are no longer simply offering a menu of funds and hoping participants make good choices. They are being asked to help employees save enough, invest appropriately, and eventually generate sustainable income in retirement. That is a much harder job, especially when many participants have limited financial confidence and little access to advice outside the workplace.
Brant: The tension is that the 401(k) system has become more important at the same time as it has become more complex. Plans now have to account for longevity, market volatility, withdrawal needs, and participant behavior, all inside a structure originally built to accumulate savings. That is why plan design matters – the design ultimately determines whether good ideas work in practice.
Teresa: The research is clear that structure matters. Recent reviews from the National Bureau of Economic Research and Wharton’s Pension Research Council show that automatic enrollment, default investments, and escalation policies have materially improved participation and savings behavior, even if no single feature solves everything.
More recent modeling by the Employee Benefit Research Institute found that combining automatic enrollment, automatic escalation, and portability can meaningfully reduce the risk that workers run short of money in retirement.
Brant: That matters because outcomes are not driven only by the investment lineup. They are also influenced by defaults, communication, and how much decision-making the participant is expected to do on their own. A plan can have strong options and still fall short if participants are not engaging with it in a useful way.
Teresa: A big part of it is figuring out how to respond to changing participant needs without making the plan harder to manage or explain. Sponsors can see that workers want more help, especially as more people approach retirement and start thinking less about balances and more about income. But they also want to be careful about adding features they cannot clearly explain, oversee, or tie back to participant benefit. That is why the conversation has shifted beyond simply adding more choices.
Brant: You can see that in areas like private assets and retirement income. Sponsors are interested, but the discussion tends to come back to practical questions. How would this fit inside a default? What does it mean for liquidity? Will participants understand it? Can it be supported from a governance standpoint? That is where most of the debate is right now.
Brant: Not at all. It just means innovation needs to be evaluated based on whether it can improve outcomes for participants. In private markets, for example, the conversation has shifted toward how those exposures could be used responsibly in defined contribution plans, often through diversified vehicles rather than stand-alone options. The same is true for retirement income. The post-SECURE Act environment has expanded the toolkit, but the real challenge is making income solutions portable, liquid, simple, and usable inside the participant experience.
Teresa: And for many sponsors, “not yet” can be a smart answer. If a plan still needs to improve participation, savings rates, or education, those basics may do more for outcomes than the next investment trend. For a lot of sponsors, the priority is getting the core design right to reflect the workforce in front of you before taking on more complexity.
Teresa: It is very important. Most participants are not looking for more choice. They want help understanding whether they are on track and what they should do next. And industry research continues to show that many participants lack an outside advisor and increasingly look to workplace providers for help.
Brant: Advice is an important part of making the plan more useful to participants. It can help with contribution decisions, staying invested during periods of volatility, and thinking about retirement in terms of income rather than just account balances. So in that sense, advice is part of the overall design, not something separate from it.
Teresa: First, participant behavior has a real impact on outcomes. Second, the plans that tend to work best usually combine solid investment options with effective defaults, clear communication, and access to guidance.
Brant: And third, this does not have to be framed as a choice between innovation and prudence. Plans can evolve as participant needs change, but they must do so in a practical, well-governed, and focused way on improving real-world retirement outcomes.
Teresa: Starting with the participant and their experience is paramount. Before adding anything new, sponsors should ask whether it meets a real need and whether participants are likely to benefit from it as the plan is designed.
Beyond that, we have found that many plan sponsors and their clients benefit from reviewing the basic hygiene of their plan. Are they protecting themselves from cyber threats by doing authentication and checking their balances monthly? Have they updated their beneficiaries to reflect their life changes? Have they confirmed that they are even participating in the plan? Our research has found that a significant number of plan participants believe they are participating in their 401(k) plan when, in fact, they are not.
Brant: When it comes to retirement portfolios, put purpose before product. Whether you are evaluating private investments, annuities, or any other retirement solution, the key question is simple: what problem does this solve for participants? And beyond the investment itself, can the plan support it operationally, communicate it clearly, and use it in a way that improves outcomes?
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