There’s a perception that DC plan members don’t feel responsible for managing risk, says Marcus Turner, senior investment consultant with Towers Watson Canada Inc. Anecdotally, this disengagement has been attributed to members feeling like they don’t have to take responsibility because they belong to a large corporation that will take care of them in retirement. And this would appear to be true, since DC members often don’t react to changes in their plans. However, this perception could be just that: nothing more than perception.
Research by Towers Watson showed that more than half of the members surveyed were entirely aware of their responsibility for managing risk. However, the same number also showed a lack of awareness for knowing how to manage that risk. So while DC members may not be reacting to plan changes, it’s not because they don’t want to or don’t think they need to—it’s because they don’t know how.
“I think DC members face a particularly complicated framework in which they have to operate,” says Turner. “As a DC member, you have to consider a number of things. You have to consider longevity risk—how long are you going to need your retirement income? This folds into how much money you will actually need. That’s an incredibly difficult question for the average DC member to answer. It’s an incredibly difficult question for anybody to answer.”
Turner suggests that plan sponsors address the lack of insight, as opposed to the perceived member apathy, and provide members with more robust tools that will enable them to better understand how they can manage their plans.
“The moment some of the tools oversimplify what the expectation will be for investment returns, they really do a very poor job, if at all, of addressing what a member’s expected income needs are 20, 30 or 40 years down the road,” he continues.
Watch the video to find out what else Turner has to say.