Our introductory article focused on success in a defined contribution (DC) plan while considering the perspectives of both employers and employees. The topic of “success” is a timely one, given the dynamic external environment driving the plan outcomes, but it is also an enduring topic requiring a more strategic approach to plan management.
As plan sponsors grapple with the challenging external climate, we are seeing employers adopt a spectrum of plan management approaches:
- Employer as the enabler: In this scenario, the employer views the retirement strategy as a capital accumulation approach complementing a broader rewards strategy that targets cash rewards as a means of retaining employees. The benefits philosophy targets shifting cost and risks to the employees, and the DC plans are managed by prioritizing cost management objectives.
- Employer as paternalistic provider: In this scenario, the employer recognizes the role of benefit strategies in attracting, retaining and transitioning the workforce. The DC plan strategy is a holistic focus on optimizing outcomes by balancing contribution strategies, investment policies and employee engagement.
While these two scenarios occupy opposite ends of the spectrum, many sponsors adopt elements of both and fall somewhere in between. Looking at a broader definition of success, we would suggest the consideration of a wider framework to set overall objectives for your retirement strategy. As this framework focuses on the role of retirement benefits against your corporate objectives, it can be used in a defined benefit (DB) or DC context.
We advocate the need to set the objectives of your retirement strategy using four different lenses, or perspectives:
The employer perspective identifies the workforce needs of the company and the role of the retirement strategy in attracting, retaining and transitioning the workforce into retirement. The employee perspective isolates the importance of the retirement plans in the employment value proposition, and the expectation of employees’ savings for income needs in retirement.
In the external perspective, the sponsor defines its role in the continually changing public policy debate around retirement plans, as well as defining the sponsor’s role on the spectrum identified above. Last, the cost perspective identifies the impact of retirement plan costs on corporate financial results, and the overall tolerance around cost and cash volatility.
By blending these four perspectives, the plan sponsor is prepared to derive a retirement strategy in complete alignment with corporate and workforce objectives. Further, monitoring the plan results against these goals ensures that “success” in the plan – be it DB or DC – is sustainable amid the fluid external landscape.
About the author:
Julie serves as the Global Leader for Mercer’s DC Consulting business, leading the global development and deployment of Mercer’s DC Consulting services across its retirement and investment businesses. In this role, Julie’s responsibilities include building differentiated intellectual capital, supporting and leading business/sales teams, helping to attract, develop and retain a community of DC professionals and enhancing Mercer’s DC brand in the marketplace. She is an Associate in the Society of Actuaries and a member of the American Academy of Actuaries.