Large retirement plan sponsors in the United States say participation in defined contribution (DC) plans should be mandatory.
According to The Path Forward: Designing the Ideal Defined Contribution Plan study released by Northern Trust and Greenwich Associates, there should also be automatic increases in contributions each year until workers are setting aside more than 10% of their salaries.
In addition to mandatory participation and automatic enrollment, savings escalation and employer contributions, a majority of respondents also favoured government and employer policies. These would include tax incentives, loan restrictions and transparent fee structures.
“The study participants describe the ideal DC plan as simple, automatic and cost effective,” says Jim Danaher, senior investment product manager for defined contribution solutions at Northern Trust Global Investments.
Seventy-five percent of those surveyed support automatic escalation features that work in tandem with auto-enrollment. They also agree that the ideal DC plan structure would include significant contributions from employers, with 60% of plan sponsors believing employer contributions should vest immediately.
The study also revealed there is some tension between consultants and plan sponsors over levels of control regarding enrollment, contribution levels and investment options.
While investment consultants were inclined to suggest that plan sponsors assume much of the responsibility for decision-making within the DC plan, plan sponsors countered that employers should design efficient retirement programs but allow employees to make informed decisions about what is best for them and their money.
The study surveyed 50 large U.S. DC plan sponsors and five large investment consulting firms. Participants included leaders of DC plans for multinational corporations in the retail, energy, manufacturing and technology sectors, and represent more than 970,000 participants and over $100 billion in plan assets. Respondents were interviewed by Greenwich Associates in July, August of this year.
More details of the study, including comments from participants, can be found in the full report on Northern Trust’s website.