Top 10 resolutions for DC plan sponsors

Over 2009, the global, U.S. and Canadian equity markets performed well. Those who remained invested in 2009 recovered a significant proportion of their 2008 losses, said Daniel Audet, principal, investment consulting, with Mercer in Calgary.

2009 taught investors that the markets are volatile, says Audet, adding that plan sponsors will want to pay attention to those members who are approaching retirement. “The individuals closest to retirement need the most help in assessing their situation.”

Plan sponsors have to figure out what can be done to assess their DC plans now in order to help their members for retirement. Here are Mercer’s Top 10 resolutions.

1. Manage employee retirement expectations.
With people not contributing enough, improperly invested, fees too high and investment options that aren’t delivering, plan sponsors need to get a sense if their membership is on track or not for retirement. According to Mercer’s 2009 Global DC Survey, 42% of participants are using guesswork to find out how much savings they need for retirement. Plan sponsors need to encourage their employees to use retirement tools.

2. Review your DC plan design.
Compare plans to other plans in your region and your industry, and test your plan’s effectiveness with a survey or analysis of contribution behaviours.

3. Look at your communication and education strategy.
In Mercer’s 2009 Global DC Survey, 77% of respondents said “limited member understanding” was among their top three DC concerns. And remember to measure the success of your communication/education efforts. According to the survey, about one-third of sponsors don’t measure their strategy’s success.

4. Consider automatic features to improve member savings.
According to some studies, there was improvement in participant rates by 12% to 38% after plan sponsors implemented auto-enrolment.

5. Assess the efficiency of the investment fund lineup.
Help employees make sound decisions no matter what kind of investor she is or what her investment knowledge is.

6. Help members understand how to choose fund options based on their investment knowledge and level of interest.

7. Review your default investment option.
According to Mercer’s survey, 30% of plan sponsors with a money market default plan to change their default option in the next two years.

8. Review communication to members around target date funds (TDFs).
Help members understand why the results of TDFs will vary from year to year.

9. Benchmark plan fees and review them for disclosure to plan members.

10. Become familiar with adding guaranteed retirement income products or drawdown solutions.
Remember to evaluate the benefits versus the cost of these products.

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