The shift from defined benefit plans to defined contribution (DC) plans has placed significant responsibility and challenges on employees. Recent DC plan member surveys reveal that members continue to feel confused and ill-prepared. They do not have a retirement goal and don’t know how much they should be saving. Plan sponsors have a key role to play in closing the gap between where DC plan members are now, and where they need to be to retire comfortably.
Establishing best practices across all areas of DC plan management is critical in achieving improved retirement plan outcomes over time. Mercer proposes the following 10 resolutions for DC plan sponsors to undertake in 2014:
- Focus on Retirement Readiness: Help prepare employees
Having a workforce prepared for retirement will increase workforce management flexibility. Support and educate employees about the choices they will face at retirement.
- Move Beyond Fee Competitiveness: Explain fees and promote disclosure
Ensure that plan sponsors and employees understand the fees they pay and how that impacts their retirement income.
- Take a Strategic Approach: Help manage risk
With increasing options available, plan sponsors can now design a target date option to support employees by tailoring the glidepath (from equities into less risky assets) based on member demographics
- Redefine Success: Deliver future financial security
Analyze employee behaviors that ultimately drive retirement outcomes, develop sophisticated metrics to improve those outcomes and construct a retirement income plan to improve financial security for employees.
- Consider Corporate Sustainability: Align your DC Plan with your corporate sustainability strategy
Integrate environmental, social and governance (ESG) factors into current investment strategies and tie to the organization’s corporate responsibility platforms in order to drive employee engagement and satisfaction.
- Push the Communication Envelope: Build an effective strategy
Increase the use of mobile technology, gamification and social media to promote generational education strategies that improve member engagement.
- Consider Yield: Take advantage of opportunities
Re-consider your approach to capturing returns from fixed income assets, taking into consideration the size of employees’ fixed income allocations. Given the potential for reduced returns from both government bonds and spread assets, broader and more dynamic mandates may be better suited to the current environment.
- An Evolving Market: Reassess your position
How long has it been since your DC plan was put out to bid? It may be time to explore what is out there to make it easier to meet your plan objectives.
- Address the Diversification Challenge: A custom approach can be beneficial
Custom funds can provide employees with access to greater diversification through exposure to alternatives, opportunistic fixed income and real asset strategies while reducing the number of choices and without adding complexity to their investment decision-making process.
- Streamline: Consolidation can drive efficiencies
With efficiency a key objective for most plan sponsors, consolidating governance processes and documentation can lead to more effective management of retirement plans. It is imperative that governance be consistent and streamlined so that it is clearly understood by fiduciaries and supports simple and easy implementation of new ideas.
Mercer is a global consulting leader in health, wealth and careers. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in more than 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With annual revenue of $13 billion and 60,000 employees worldwide, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.ca. Follow Mercer on Twitter @MercerCanada.