With DC pension plans continuing to gain prominence as a leading tool for employee retirement saving, Mercer has offered a list of steps plan sponsors can take to improve their offering in 2013.
“It’s no longer a situation where DC plan sponsors can simply ‘set it and forget it,’ ” says Amy Reynolds, a partner in Mercer’s retirement business and the company’s U.S. DC leader. “The trend is for plan sponsors to regularly evaluate whether their DC plans are successful for both the organization and its employees. As a result, plan sponsors are more active in reviewing plan objectives, more prescriptive when it comes to investment options, and more invested in communicating with employees who want to understand how to achieve their own retirement income goals.”
1. Optimize for better retirement outcomes
A successful DC plan hinges on four factors: increasing participation, increasing the savings amount, investing appropriately and spending wisely. Employers can optimize their plans through intentional intervention based on plan demographics and employee behavior. Costs should be minimized where appropriate to increase the value of each factor.
2. Recalibrate your default option
Consider auto-enrollment, auto-escalation, and re-enrollment in driving participant behavior. A default investment option should provide a professionally managed, well-diversified, single option solution for participants who cannot or do not want to make asset allocation and rebalancing decisions on their own. Review the appropriateness of your default option for your unique participant population. If you offer target risk funds, consider switching to target date funds. If you offer off-the-shelf target date funds, reevaluate the asset allocation glide path construction, or consider offering customized target date funds based on your plan demographics.
3. Clarify your communications
Many plan sponsors offer a tiered investment structure to help participants make better investment allocation decisions. Make sure the investment options are communicated by tier in the participant education/enrollment materials and on the plan’s website/on-line tools.
4. Help participants understand their retirement income
Participants can’t relate to large lump-sum amounts in the distant future. Tell them how much monthly income, in today’s dollars, they can expect in retirement given their current balance, contribution rate and years to expected retirement. Educate on how actions they take now may impact that outcome.
5. Develop a spend-down strategy
Handing retirees a lump sum check and wishing them good luck doesn’t cut it. While we’d all like more developed retirement income tools and additional regulatory guidance, we can’t put our near-retirement employees on hold indefinitely. It’s time to start crafting real solutions for the spend-down challenge.