Ten years is a long time—and in that decade since the passage of the Pension Protection Act, defined contribution plans have changed substantially in structure even as the part they play in Americans’ retirement has also changed—from a supporting role to the main act.

Now that DC plans have stepped up from being a supplemental savings vehicle to being the primary retirement savings vehicle many employees rely on, a Willis Towers Watson paper has analyzed DC plans with an eye toward seeing how well they have done at keeping up with the transformation.

In so doing, WTW has identified five steps plan sponsors can use to “get back to the basics” by reevaluating existing governance structures and processes currently in place in their plans, followed by five steps sponsors should take to help their plans get “back to the future,” using best practices to make sure plans continue to evolve. Here they are below.

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10. Ensure your governance structure reflects retirement plan objectives.

As retirement plans change and become increasingly complex, WTW says that historical governance structures may no longer be sufficient. It recommends determining the appropriate internal and external people involved and the amount of time needed to commit to the review.

In addition, it suggests that merging investment and administrative committees to create a single body could be a way to get maximum flexibility to address benefit needs and increase the likelihood of successful retirement outcomes for participants. Subcommittees can be delegated to handle specific activities.

9. Delegate decisions to make better use of internal governance people.

Pointing to optimal governance as critical for successful DC plan management, WTW suggests that internal people can be deployed more efficiently when some tasks are delegated to an external partner.

Perhaps activities such as manager selection or administrative operations, could be outsourced so that more committee time could be devoted to strategic decisions such as plan design or communication strategy.

In addition, by delegating investment decisions, sponsors benefit from another provider taking on fiduciary responsibility alongside the committee.

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8. Set strategic objectives for your committee and establish metrics for measuring success.

To make effective decisions, a committee must have clearly defined beliefs, goals and objectives. For example, how paternalistic does your committee wish to be?

Conduct an investment beliefs survey of your committee, discuss objectives and document the outcomes. Then consider benchmarking plans to achieve goals such as maximizing retirement readiness outcomes, and evaluating what to do to achieve those goals.

7. Establish/enhance your process for reviewing plan fees.

Fiduciary risk is on the rise, with increasing numbers of lawsuits aimed at DC plan sponsors—most of them including claims of excessive fees paid for investment management and/or administrative services.

Sponsors should have appropriate processes to keep on top of all fees their plans pay, with periodic monitoring to assess that all plan fees are reasonable.

6. Update your policy documents.

Most investment committees have an investment policy statement in place, but have not realized that if the documents are not structured properly, they can actually increase risk.

WTW points out that policy documents can be used against fiduciaries during litigation if not followed precisely, and recommends rewriting documents to avoid overly prescriptive language that dictates what a committee “should,” “must” or “shall” do in a given circumstance.

In addition, it recommends that sponsors consider establishing a distinct fee policy statement that addresses the process for allocating and reviewing plan fees.

5. Learn about the latest auto features.

While auto-enrollment and auto-escalaation features are in far greater use than they were 10 years ago, when the PPA was passed, that doesn’t mean they’re perfect.

Next-generation auto features include extended match structures, custom default rates based on age, and auto-enrollment to Roth instead of pretax contributions.

Plan sponsors need to evaluate auto features to see which will best satisfy their own plan objectives, particularly since some auto features could actually stand in the way of achieving those objectives.

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4. Develop an engagement strategy to change participant behaviors.

Dealing with the differing needs of the five generations currently in the workforce makes it more difficult, and more important than ever, to engage with participants.

Traditional broad-based, nontargeted engagement strategies are no longer appropriate.

In 2017, best practices involve smarter communications that use up-to-date knowledge of participant behavior and financial decisionmaking. Communications should be outcome-focused and generationally targeted.

3. Consider alternative default investment options.

Target-date funds, which accounted for 46 percent of DC contributions in 2015, are still the dominant qualified default investment alternative, with tremendous asset inflows in recent years.

However, it’s vital for sponsors to review how appropriate their funds are.

To do so, they should follow U.S. Department of Labor guidance to review their TDF glide path, and also consider custom solutions.

WTW suggests in particular that sponsors consider hybrid QDIA solutions that combine TDFs with managed accounts for different participant groups.

2. Evaluate lifetime income solutions.

With participants looking for ways to turn their plan savings into lifetime income, the lifetime income solution landscape is evolving—and plan sponsors are beginning to incorporate options to help employees improve their financial security in retirement.

While participant demand for these solutions hasn’t quite taken off yet, WTW believes that longer life spans and historically low rates of return on retirement savings causing longevity risks to spike will change that.

Sponsors need to keep themselves educated on current offerings and to press for more robust solutions in the future.

1. Safeguard your participant data.

Hacking intrusions are becoming ever more common, and a prime target is participants’ benefit plan data.

In addition to your enterprisewide security measures, you also need to know whether your recordkeeper is contractually obligated to protect you and your participants, and also review your own and your recordkeeper’s insurance coverage.

Participants’ data needs to be safeguarded with at least the level of care that your recordkeeper treats its own data.

Instant Insights /

10 things plan sponsors can do to get ready for 2017

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