Various recent surveys of DC plan members reveal that they feel confused and ill-prepared when it comes to retirement income. They usually don’t have a retirement goal and don’t know how much they should be saving. Plan sponsors have a key role to play in changing this situation and helping members to retire comfortably.
Mercer recommends the following 10 resolutions for DC plan sponsors this year:
1. Help prepare employees
Having staff that is prepared for retirement tends to increase workforce management flexibility. Support and educate employees about the choices they will face at retirement.
2. Explain fees
Ensure that plan members understand the fees they pay and how those fees affect their retirement income.
3. Help manage risk
With more options available, plan sponsors can now design a target date option to support employees by tailoring the approach (from equities into less risky assets) based on member demographics
4. Deliver future financial security
Analyze employee behaviors that ultimately drive retirement outcomes, develop sophisticated metrics to improve those outcomes and create a retirement income road map to improve financial security for employees.
5. Align your DC plan with your corporate sustainability strategy
Integrate environmental, social and governance factors into current investment strategies and tie the DC plan to the organization’s corporate responsibility platforms in order to increase employee engagement and satisfaction.
6. Push the communication envelope
Increase the use of mobile technology, gamification and social media to create generational education strategies that improve member engagement.
7. Consider yield
Revise your approach to capturing returns from fixed income assets, taking into account the size of employees’ fixed income allocations. Given the potential for reduced returns from both government bonds and spread assets, broader and more dynamic mandates may be better suited to the current environment.
8. Reassess your position in a changing market
How long has it been since your DC plan was put out to bid? It may be time to explore what is out there to make it easier to meet your plan objectives.
9. Tackle the diversification challenge
Custom funds can provide employees with access to greater diversification through exposure to alternatives, opportunistic fixed income and real assets while reducing the number of choices but not adding complexity to their investment decisions.
10. Consolidate
With efficiency a key objective for most plan sponsors, consolidating governance processes and documentation can lead to more effective management of DC plans. Governance should be consistent and streamlined so that it is clearly understood by fiduciaries and supports simple and easy introduction of new ideas.
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