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5 Questions for DC Plan Sponsors Heading into 2022

Industry Trends and Research

Looking ahead to next year, there are a number of evolving issues and threats that defined contribution plan sponsors need to be prepared for, a new white paper suggests.   

“As we turn our sights to 2022, the memories of the last two years serve as motivation to focus our efforts on continued improvement of the financial stability and retirement preparedness of defined contribution plan participants,” Mercer explains in Top Considerations for Defined Contribution Plans in 2022.

With cybersecurity risks evolving and DC litigation becoming more nuanced, plan fiduciaries must keep pace with the changes, the paper emphasizes. Moreover, consolidation within the recordkeeping space has led more sponsors to reevaluate their partners with a “long-term lens.” At the same time, the DC investment product landscape continues to generate new investment solutions, while new legislation and regulations could create opportunities for sponsors to enhance the retirement readiness of their plan participants.   

“We believe that an approach with flexibility and participants at the center is key for plan sponsors who wish to have a resilient retirement strategy for 2022 and beyond,” Mercer says. As such, the firm offers five key questions that it believes plan sponsors should answer as they plan for the coming year. 

1. Are you crunching the numbers and considering the data?

In suggesting that “data is king,” analyzing participant demographics and behavioral trends will allow sponsors to sharpen their retirement program tools and messages more effectively, according to Mercer. “With data analysis, sponsors can explore ways to evolve their retirement program to embrace the diversity of their workforce while fostering equity and inclusion through plan design, communications and investment strategies,” the paper emphasizes.  

Moreover, with recordkeepers using artificial intelligence to create more personalized experiences, the firm notes that the scope of the messaging and the possible outcomes vary significantly by organization. Sponsors should stay up to date on offerings from both their current administrator and the broader DC space to determine which solutions may be the most relevant for their populations, the paper advises. 

Mercer also warns, however, that the Department of Labor’s cybersecurity best practices guidance is a “first step” toward holding plan fiduciaries responsible in this area. As such, fiduciaries need to consider how to safeguard personally identifiable information (PII) and should continue to evaluate their administrator, and any third-party contractors, to understand how PII is safeguarded and help ensure adequate contracting, ongoing review and committee documentation, the paper advises.  

2. Are you keeping up with investment product evolution?

Among other things, the industry will continue to see new investment products to address retirement income needs, bring private market access to DC plans and increase personalization, such as through managed accounts, the paper notes. In addition, the new year may bring clarity to the DOL’s perspective on the use of ESG factors in relation to fiduciary responsibility.

As such, sponsors should review their investment structure relative to the needs of their population to determine whether their current investment menu is suitable, the paper advises. Sponsors also should consider how their current approach to evaluating managers may apply to ESG factors and whether additional diligence measures are warranted.  

3. How are you managing fiduciary responsibilities?

With fiduciaries strained to keep up with never-ending developments, the firm believes that outsourcing or delegating responsibilities will continue to gain in popularity in 2022, with one of the key reasons being a lack of internal resources.

“The spectrum of outsourcing solutions has expanded and sponsors may wish to review available options as needs change,” the paper states. Moreover, sponsors interested in alleviating some of the burdens associated with securing fiduciary insurance may want to consider whether outsourcing some aspects of DC plan management could help, the paper further advises. 

4. Is growth within the DC retirement space a problem?

For many within the DC retirement space, such as recordkeepers, significant recent growth has been triggered by margin compression and led to numerous acquisitions. For others, such as investment managers, equity market strength has increased AUM and capacity constraints. In both instances there are downstream implications for plan sponsors, the paper observes. 

“As certain asset classes have performed strongly in 2021, some investment managers, such as small cap equity managers, have become capacity constrained and sponsors have been left with gaps in their investment lineups as investments strategies have closed,” the paper explains. Consequently, fiduciaries should consider whether custom, multi-manager portfolios may provide better flexibility for growth in assets, in addition to improved diversification, Mercer advises. 

Moreover, as the list of recordkeepers has condensed even further and the top recordkeepers continue to grow, the firm observes that this growth is bringing “increased pressure” on sponsors to standardize, making it even more difficult to leverage their retirement programs as a differentiator in a competitive employment market.

5. How will legislation and regulation affect your plan in 2022?

While not mentioning specific legislation, such as SECURE Act 2.0, Mercer anticipates that 2022 will bring resolution “through initiatives that expand coverage and reward the average worker for saving, possibly at the expense of the features and programs that have historically benefited the higher compensated.” 

Accordingly, the paper emphasizes that sponsors should stay informed on policy discussions in Washington and anticipate questions from participants. What’s more, as legislation nears a more final form, the firm suggests that those who are quick to react may be able to capitalize on design opportunities and position themselves favorably in a tight labor market. 

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