Is your DC plan successful as it can be?

1. Fee allocation: Get ready for the spotlight

New fee disclosures will bring heightened scrutiny of fees. Has your committee reviewed and documented your plan’s methodology for allocating fees to participant accounts (whether through revenue sharing or other methods)? Be prepared to defend your allocation methodology against participant inquiries and fiduciary lawsuits.

 Find out more information on fee trends 

2. Reconsider custom target date strategies – Account minimums have fallen

Custom target-date funds, tailored to your specific participant demographics (for example, industry/sector, average account balance, participant behavior and outside income sources), are now cost effective at much lower asset levels. Custom strategies typically use the plan’s underlying core investment options, allowing economies of scale via lower fees and reduced monitoring requirements. Including strategies beyond the core options may enhance diversification and return opportunities. With greater use of automated features, default investments – such as target date funds – are likely to continue their significant growth.

3. Make sure your spend down strategy is working – for participants and your organization

Expected retirement age is shifting from the 60s into the 70s: 20% of the workforce older than age 50 expects to never retire1. One factor in this dynamic is uncertainty around managing income through retirement. Plan sponsors increasingly look to spend-down strategies to help with retirement-related workforce management issues. The marketplace for spend-down products is evolving to address the competing demands of access to capital, protection from risk and enhanced returns. While awaiting key regulatory guidance, stay abreast of developments in institutional-quality¹ products, still in early stages of development.

4. Use plan governance to promote strategic plan management

Appropriate plan governance is not just limited to risk management. As defined contribution (DC) plans take on heavier workloads and exert more impact on organizations and their workforces, it becomes increasingly important that plan decisions are thoughtful and strategic. Begin by ensuring that your plan objectives are clear. Then use those clear objectives along with specific action plans and stronger metrics to help ensure that your objectives are being met.

 Find more information on developing a global DC Policy

5. Monitor your stable value option

The stable value market continues to undergo stress and change, as some managers exit the market and wrap providers increase pricing and restrictions on investment guidelines. The result will be further limits on capacity and potentially reduced return premiums over alternative capital preservation options. Stable value options deserve the same care and prudence as other plan options, including evaluations of the team, process, constraints, competitive advantages of the provider, and consideration of alternative capital preservation options, including money market and short-duration bond options. The industry is also awaiting the final rules on whether new wrap contracts will be exempted from new swap rules.

6. Consider adding a diversified inflation option

The availability of compelling, institutional-quality, diversified inflation options continues to grow. As stand-alone options, they offer access to asset classes not currently available in most DC plans, including treasury inflation-protected securities, commodities, real estate and inflation-sensitive equities and bonds, and provide diversification beyond traditional equities and bond options. Many plans are creating custom fund-of-funds to specifically suit their needs.

 Find more information on DC trends

7. Understand that automatic features do not necesarily drive engagement

Although DC plans with automatic enrollment and auto-increase features have improved participation and contribution rates, they often fall short of the contribution rates of actively engaged participants. Even if you have high participation rates, commit to using every communication media and approach you can to increase the number of engaged retirement savers.

8. Refocus your retirement strategy – Deliver more with less

It’s likely your organization’s environment has changed dramatically in the past several years. Has your retirement strategy kept pace with your workforce management needs? Does your plan deliver sufficient benefits to facilitate workforce transition? Consider this: One-third of the workforce is looking to change employment, and retirement benefits are second in importance (first is base pay) to the talent you want to attract and retain. Yet most organizations struggle to find funding to improve retirement contributions. In this environment, there is no room for underperformance. Take steps to ensure that investments, participant behavior, design and cost structure are optimizing benefit outcomes.

 Find more information on Mercer’s What’s Working^TM research

9. Use 'expected monthly retirement income' to inform and drive participant behavior

One of the most effective ways to encourage participants to focus on outcomes is to show them the impact of contribution level and investment allocation on their monthly income during retirement. Consider adding this feature to quarterly statements and plan websites.

10. Keep pace with changing media

Employees, especially younger ones, increasingly expect to communicate at work the way they do outside of work. The preferred medium is shifting. To stay engaged with your changing workforce, identify approaches that take advantage of the new (emerging) media.

Footnotes

1 Employee Benefi t Research Institute and Mathew Greenwald & Assoc. Inc., Retirement Confi dence Surveys