Do DC Plans Need To Be Redesigned?

A new survey asks what appears to be a rhetorical question.

The report, a 2016 Defined Contribution Outlook from SEI based on survey responses of 231 executives representing plans in a wide range of sizes ($25 million to over $5 billion), may not be the most representative sampling; 64% of respondents still offer their workers a DB plan (though 74% are closed to new hires and a “significant portion have stopped accruals for participants”), while nearly a third (30%) offer supplemental savings plans in addition to the DC plan.

That said, the plan sponsors surveyed were not optimistic about their participants’ retirement prospects; 84% were not very confident that those workers would have the income needed when they retire. Moreover, there was concern about the impact that might have on their business; 88% said their business would be impacted in some way if their employees cannot stop working at retirement age.

The author’s “key questions and areas for concern” could be summed up as follows:

Provide DC participants with access to the same money managers as DC plans. The SEI survey found that 82% of those plans do not permit this at present, including 77% of those with active DB plans. Of course, this would only be an option for those who offer a DB plan.

Simplify the core menu. While a recommended number was not provided, the authors noted that not only did two-thirds now offer more than 11 options, 43% said it was likely or somewhat likely they would add new asset classes to the DC plan in the next 12 months. One senses they did not view this as a good thing.

Understand the influence of brand-name funds on participant decisions. While acknowledging that 88% of their plan sponsor survey respondents didn’t feel that brand had any influence, the survey’s authors were not only skeptical, they noted that 20% of survey respondents said it was likely/somewhat likely that they would be removing brand names and replacing them with white label options in the next 12 months.

Unbundle asset management from recordkeeping. While 62% of survey respondents seemed to concur with this notion, only 16% of respondents said it was likely/somewhat likely that they would move in this direction in the next 12 months.

Consider the role of the plan sponsors in increasing participant account balances. The vast majority of plan sponsor respondents (87%) felt that participants needed to contribute more, while only 20% felt that the company needed to match more. Regardless, 85% of plan sponsors said it was unlikely that their match would be increased in the next 12 months.

Use re-enrollment to increase participation and results. Only about a fifth (21%) of plan sponsors said they believe re-enrollment should take place, and just 36% said it was likely/somewhat likely that they would conduct one in the next 12 months.

Improve the participant experience by focusing on education. Two-thirds of plan sponsors said their participants need to be better educated on how they are investing, and 91% said it was likely/somewhat likely they will increase participant education in the next 12 months.

Continue to grow investment understanding/expertise on DC plan committee. Since, after all, 86% of plan sponsors said that those committees drive decisions about fund lineup changes…

Will any of this matter? Comments welcome below.

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