Sponsors of defined contribution retirement plans must focus on retirement outcomes that help participants meet their objectives and manage their risk, according to a 2014 forecast by Mercer.
Helping employees put their financial house in order has bottom-line advantages for their employers, the company said, but managing litigation, audit and public-relations risk has become more complex. The upcoming year will see many changes, including judicial action, regulatory developments and stepped up litigation and enforcement. Mercer believes that establishing best practices across all areas of DC plan management is critical as they have become the primary savings vehicle for many U.S. workers.
4. Say goodbye to revenue sharing. Mercer believes that paying administrative fees based on each fund’s level of revenue sharing may not stand up to scrutiny. A red flag arises if some participants pay higher administrative costs because their fund options carry revenue sharing. Achieve transparency and level allocation of administrative fees by reducing or eliminating revenue sharing, or by allocating it back to participants, Mercer said.
6. Consider the impact of inflation on participants’ retirement readiness. Despite the low interest rate environment from 2000 to 2013, participants’ purchasing power decreased by more than 20 percent, according to a Mercer study. Purchasing power erosion and its effect on retirement readiness can lead to workforce planning issues. Help participants address this risk by assessing the appropriateness of offering a diversified inflation option within the plan.
8. Reassess the market. The evolution of the DC market has driven changes in vendor position, strategy and focus. Figure out how long it has been since you put your retirement plan out to bid. Plans grow and their needs evolve. It may be time to explore the available options, Mercer said.
10. Keep pushing the communication envelope. Assess how new approaches to communications and targeting can more effectively reach the various populations within the plan to help drive engagement.