A lack of trust is your company’s biggest expense, said keynote speaker David Horsager, business strategist and best-selling author, who spoke at our recent Benefits & Pension Summit (BPS). And this issue of trust—or lack thereof—really resonates with those in the pension industry.
During the financial crisis, not only did DC plan members lose money, they also lost trust: in iconic firms that proved not to be too big to fail; in financial institutions that didn’t understand what they were buying and failed to protect investors; and in the ability of markets to deliver needed returns. No wonder they’re now looking to their employers for guidance.
Trust was also a recurring theme in our 2013 CAP Member Survey. Most respondents (61%) agreed that if they don’t make their own investment choices, the employer should take responsibility to ensure that their contributions are invested appropriately. Two-thirds said they trust that the default investment chosen by their employer will provide them with adequate funds for retirement.
And that’s not all. Almost the same percentage of members (60%) agreed with the statement, My employer has a responsibility to ensure that the investment choices I make in my employee retirement plan(s) are the best choices for me. In other words, not only do CAP members expect the employer to offer an appropriately diversified range of investment options, they also expect the employer to be actively involved in the investment decision-making process.
Some attendees at the BPS expressed their frustration at the unrealistic expectations that members want to impose on plan sponsors. But after years of volatile markets—in an environment where DC hasn’t delivered what it has promised—can you blame them?
It’s hardly surprising that members would prefer a more paternalistic retirement model. But employers may not be prepared to take on this role—especially since, for many, risk mitigation was a major impetus to move to DC in the first place. The ongoing struggle, then, is to strike the right balance between what members want and what plan sponsors are willing to provide.
Experts at the BPS cautioned that there’s still a significant need for education and communication at different life stages, for different employee groups and across different media. Yet many agreed that a more DB-like plan design—one that takes away much of the choice and decision-making responsibility from plan members—would go a long way toward improving retirement income adequacy and keeping members happy.
From DB to DC—now back again. And so the pendulum swings the other way.
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