We are delighted to present the sixth edition of Mercer’s DC Connections. In this issue, we explore the critical success factors of defined contribution (DC) plans. The topic of plan success comes during a period of turmoil that is driving the priorities of the DC plan. From an employee perspective, retirement savings is becoming a more important element of the employment value proposition. As highlighted in Mercer’s recent Inside Employees’ Minds™ survey of attitudes about elements of the employment value proposition, effective savings and retirement programs were highlighted as an important element of the value proposition in nine of the 17 countries surveyed. Further, in the US and Canada, retirement programs ranked the second most important element (behind pay) to the elements of the employment “deal.”
While retirement programs are important to employees, plans have failed to meet their expectations. With the backdrop of falling equity markets, DC plan members around the world have seen their retirement balances fall. Further, retirees have struggled to effectively navigate the myriad options to protect them against the risks of investments, inflation or longevity.
From the employer’s perspective, DC plans are proving to be a driverof talent management issues. Faced with declining balances and the uncertainty of a potential prolonged recession, employees have chosen to revise their definition of “retirement,” choosing to work longer to protect income security. This has caused a talent management challenge for employers, with older workers blocking opportunities for younger staff.
Against this dynamic landscape it is important to understand the overall objectives of the DC retirement strategy, and assess components of the plan against those objectives. This edition of DC Connections will highlight several elements that should be considered in order to ensure that the plan meets the ultimate desired outcome – providing effective and sustainable retirement income. So what does constitute success in a DC plan? In our conclusion we challenge our readers to answer this question, and we outline a framework that can be used to set an organization’s retirement strategy.
About the author:
ANDREW KRAMER, CFA
Andrew leads Mercer’s Marketing and Branding Group in the US, supporting the investment business. He is also a member of the US Investment Consulting Leadership Group. Andrew is a CFA charterholder and a member of the CFA Institute and the New York Society of Security Analysts.