During Benefits Canada’s annual DC Plan Summit, plan sponsors participated in interactive sessions. They split into small groups and were given questions to discuss. Based on these discussions, moderators later offered their insights and relayed key take-aways.
Shawn Cohen, director, relationship management, with MFS McLean Budden shares the best ideas from the session that he moderated: How can plan sponsors provide choice while simplifying à la carte lineups?
While the trend of reducing the number of investment options simplifies the investment decision for plan members, it does so at the risk of reduced diversification. The result is that members may be missing out on the diversification benefits offered by alternative investments. Participants had varied perspectives on whether this was a problem and how to address it—some indicated that if target date funds (TDFs) were already introduced, this would solve the problem for most members.
Call to action
- Plan sponsors need help, such as a safe harbour facility, to increase confidence in using TDFs as the default solution.
- Instead of the usual 10 to 15 investment options, create a number of diversified pools alongside TDFs based on specific objectives such as growth, income, inflation and liquidity. As an example, the growth fund would consist of a set of underlying equity funds diversified by geography, style and capitalization. Plan members would then make choices at the asset mix level based on their objectives.
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