As the attention of both Canadian governments and citizens is increasingly focused toward ensuring adequate income is saved for retirement, Mercer has proposed 10 resolutions for plan sponsors to help them evaluate their plans’ ability to deliver value to its members.
Mercer suggests plan sponsors consider these DC resolutions as they head into 2011.
1. Consider what “success” means for your DC plan
What does success mean within the context of your plan? Clarifying what your objectives should be and then monitor those objectives.
2. Analyze if members are taking full advantage of employer contributions
How much are members contributing? Are they maximizing the employer match? Do the contribution levels change for different groups of members? Answers to these questions may highlight communication/education opportunities, and which members most appreciate the plan.
3. Make sure members understand the plan savings
Members often do not realize the fee savings afforded them by their group plan as compared to similar retail investments. By making sure they understand the value you offer, they will better appreciate your plan.
4. Evaluate how your members are investing
Lifecycle investing principles suggest that members should generally invest more conservatively as they approach retirement. Looking at how individual members’ asset allocations vary as a function of age can raise questions about the reasonableness of the investment decisions being made.
5. Assess whether members are diversifying appropriately
Measure the efficiency of individual portfolios and test whether the risks being taken are being adequately compensated for by increased expected return. The results can highlight education requirements, the need to reassess your investment structure and/or re-evaluate member-focused investment tools.
6. Do not immediately settle for “off the shelf” options
Record keepers have become increasingly flexible, accommodating custom-designed target date and/or target risk funds. In many cases, customization costs only slightly more than “off the shelf” funds, and such customization can allow for the use of “best in class” investment managers and investment solutions.
7. Consider newer approaches to investment management
There may be opportunities to incorporate newer approaches into DC plans in order to improve the risk/return profile and potentially narrow the range of outcomes expected from most DC investment strategies.
8. Consider offering group spend-down products
Explore low-fee group spend-down solutions, such as group registered retirement income funds, life income funds(LIFs) and group annuity options as alternatives to high-cost retail solutions. This is advantageous to both retirees and plan members, since more assets usually lead to lower fees.
9. Provide targeted retirement planning education to members
Different retirement-income products suggest different investment approaches as members get closer to retirement. Ensure that members understand the different products.
10. Know the pros and cons of the products available to your members
Members need adequate product education to ensure they have the information necessary to make sound decisions. Such education and related communications should be completely objective to make sure decisions are not influenced by a party with a financial interest in the product.