U.S. employers reinstating, upping matching contributions for DC plans: survey

Plan sponsors in the U.S. that suspended or reduced employer-matching contributions are reinstating them or increasing their levels by 2021, said a new survey by Willis Towers Watson.

According to the survey, 60 per cent of plan sponsors said they intend to match their members’ contributions at the same level as they were prior to their suspension or reduction. The move is just one of many design features plan sponsors are exploring to help their members generate a steady flow of income in retirement and enhance their overall financial well-being.

Two in three of the respondents either have, or are very interested in, adding at least one innovative design feature to boost the value of their defined contribution pension plans. The most popular feature considered is one that assists plan members with building emergency funds through after-tax contribution provisions.

Other features plan sponsors have, or are considering, adopting are linking student loan repayment options to DC plans, as well as allowing members to choose between a variety of benefits, including DC plan contributions. And close to two-thirds of employers have reviewed or plan to review various aspects of their DC plan as part of their inclusion and diversity strategy.

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“In a world where fewer and fewer workers are relying on a traditional pension plan, the responsibility for building adequate retirement savings and generating income in retirement falls primarily to them,” said Michele Brennan, U.S. leader of defined contribution solutions at Willis Towers Watson, in a press release.

She noted employers are in the best position to provide support and guidance in this area, and they’re taking an active role in helping their employees achieve this goal through DC plans.

Indeed, employees’ financial well-being and its potential impact on organizations is top of mind for many employers. About a third (34 per cent) of respondents indicated short-term financial stress among workers is creating workforce challenges — up from 26 per cent three years ago. Additionally, 36 per cent believe financial stress will present workforce challenges in the future.

The survey also found momentum building for lifetime income options to help generate a steady stream of income in retirement from DC plans. Roughly three in 10 plan sponsors currently offer, or are considering offering, this in-plan option.

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The vast majority (80 per cent) of plan sponsors reported managing fees is a major priority for them — a 14-percentage-point increase over the past three years, as lawsuit activity targeting DC fees has continued unabated. There’s also a growing focus on target-date fund “fit,” with the survey finding a 53 per cent increase in the number of committees reviewing target-date fund suitability with participant needs.

Of note, 75 per cent of plan sponsors surveyed have benchmarked their record-keeping fees over the past three years, with many seeing meaningful results. And about 64 per cent reported their benchmarking resulted in lower administrative fees, while a third (32 per cent) were able to reduce investment expenses. The percentage of those who are  using delegated investment consulting services has more than doubled over the past three years from six per cent in 2017 to 15 per cent in 2020.

“Providing employees with a financially secure retirement goes beyond enrolling them in a DC plan,” said Alexa Nerdrum, managing director of retirement for Willis Towers Watson. “Employers recognize the financial stress their employees are facing and understand the support a robust DC plan can bring during employees’ working years and in retirement.”

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