DC plan sponsors in the US have many concerns about specific aspects of their plans. But there’s a bigger worry that looms over it all: Does the DC blueprint need to be altered going forward?
In recent years, there’s been a good deal of rumbling in the US Department of Labor (DOL)—and grumbling in Congress—about how to improve the country’s retirement savings system for workers. Attitudes about defined contribution (DC) plans range everywhere from the need for minor tweaks to wholesale tossing of the baby out with the bathwater. But while members of Congress may get apoplectic over what they see as terribly right or terribly wrong, the DOL—the government agency most responsible for regulating retirement plans—is more inclined to work with plan sponsors to find better solutions that everyone can live with.
Does the DC blueprint need an “extreme makeover”? We don’t think so. But we do see that there’s more work to be done. And our recent survey of plan sponsors as well as our ongoing DC and investment research indicate six notable steps—six best-of-the-best practices—that plan sponsors can take to improve their plans.
- Create an investment policy statement; conduct an annual review of your plan’s investment options and fees. After all, what gets measured gets managed.
- Reevaluate your plan’s default investment; consider adopting a qualified default investment alternative, or QDIA, with its safe harbor protections—and pairing it with automatic enrollment. The DOL encourages this, because it wants all American workers to have better retirement outcomes.
- Explore investment diversifiers such as global bonds, REITs and other diversifying asset classes. Successfully saving for retirement faces increased challenges that participants may overcome better if they have access to a wider universe of investment opportunities.
- Consider upgrading your target-date offering by assessing which vehicle might be a better fit for your plan’s needs: multi-manager mutual funds, collective investment trusts or a custom solution. Again, the DOL encouraged this in its 2013 “Tips for ERISA Plan Fiduciaries.”
- Explore additional plan features: automatic escalation and in-plan guaranteed lifetime income.
- Talk to your financial advisor or consultant. Our survey results showed that plan sponsors who used financial advisors or consultants fared better on many other best practices for their DC plans.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
"Target date" in a fund's name refers to the approximate year when a plan participant expects to retire and begin withdrawing from his or her account. Target-date funds gradually adjust their asset allocation, lowering risk as a participant nears retirement. Investments in target-date funds are not guaranteed against loss of principal at any time, and account values can be more or less than the original amount invested—including at the time of the fund's target date. Also, investing in target-date funds does not guarantee sufficient income in retirement.