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DCIIA Offers Tips on Adding a Retirement Tier Solution

DC Plan Design

With the nation’s population of retirees growing exponentially, a new white paper suggests that DC plan design must evolve to meet the needs of this growing demographic.

One fundamental way DC plan sponsors can support their near-retirees and retired participants is by introducing “retirement tiers” to help them manage their assets throughout retirement, according to the paper by the Defined Contribution Institutional Investment Association (DCIIA).

Within the industry, this is certainly a widely debated topic regarding the benefits of companies trying to keep assets in the plan, especially with the significant increase in assets expected to flow out of plans as Baby Boomers retire. For instance, a recent poll of Plan Sponsor Council of America members found that only a small percentage of plans are actively thinking about adding a retirement tier. Another survey suggests, however, that DC plans should offer investments and services that support retiree spending needs. 

For those who might be considering a retirement tier, DCIIA’s Engaging Participants in the Retirement Tier report provides a high-level framework that plan sponsors can use when introducing retirement tier solutions to participants. 

According to the paper, one of the most important steps is to raise awareness about the retirement tier, noting that education and communication will be essential. “This cannot be stated strongly enough. Whatever form the retirement tier takes within a plan, sponsors must clearly inform participants about offered products, solutions, tools, and services,” DCIIA states. 

Additionally, before developing and implementing a communications strategy, plans should review and potentially update their Investment Policy Statement (IPS). While most plans today operate as a retirement savings vehicle, the goal of the plan may need to be revisited to focus on retirement income rather than a wealth or accumulation goal, the paper explains. “Defining the plan as either a saving or retirement offering matters and has very important investment, service and communication implications,” DCIIA emphasizes.  

Rollout and Engagement Efforts

The paper suggests that plan sponsors should ask prospective service providers in their requests for proposals (RFPs) how they would support the rollout and ongoing engagement efforts with participants, including whether they customize communications and whether they can fully support the plan’s needs. 

As part of this process, plans also should consider involving a range of stakeholders (e.g., HR, communications, marketing, investment committee members and legal counsel) to develop a communications strategy and supporting materials. “This can help key partners understand the plan’s goals and offerings while keeping them interested and involved during the rollout and ongoing engagement phase,” DCIIA states. 

Moreover, plan sponsors can work with their service providers to identify and target various demographics, which is key not only in designing the retirement tier offering but in segmenting the plan’s communications. 

And lastly, when the plan begins promoting the retirement tier to participants, DCIIA notes that it can be helpful to ask service providers which metrics should be tracked to monitor performance. This includes, for example, which products and services are being used and how often, and whether certain communications are more effective than others. “This data can be referenced as a benchmark to measure the efficacy of outreach efforts and can help identify where to focus future efforts and refine the plan’s engagement strategy over time,” the paper suggests.