However strong your governance structure is, all plans need to evolve with changes in legislation, regulations, industry trends, and the changing needs of individuals. What may have been ideal three or five years ago may not be as ideal today. The following recommendations from Mercer can help plan sponsors assess their DC plans in light of current market conditions and challenges.
• Broader focus. Employers have historically focused solely on DC plan features targeting retirement: asset allocation, auto-enrollment, and other features. Today, companies need to acknowledge that employees may be dealing with other more-pressing financial needs and, as a result, retirement may not be their priority. Guidance and tools are necessary to empower individuals to cost effectively manage their broader financial situations.
• Student loan repayments. Employers should decide if student loan repayment plans have a place within DC plan design alongside matching employee retirement contributions. Forty million Americans currently hold $1.3 trillion in student loan debt, which many are struggling to repay. For many, paying back student loans is more of a concern than saving for retirement, yet focusing on student loan repayment may cause individuals to miss out on the employer's 401(k) match.
• Signals of matching programs. DC plan sponsors should review their participants' behavior and assess if a matching plan design is influencing the choices being made by employees. Are these the correct influences? How could the design be more effectively structured to influence the preferred behavior?
• Managed account program. DC plan sponsors should check when they last reviewed their managed account provider and see if they could currently defend their choice. In the wake of the new fiduciary rule, plan sponsors should fully understand exactly what fiduciary role the managed account provider will be accepting. Understanding potential conflicts of interest and what type of advice the managed account provider will provide (particularly related to distributions) is also crucial for plan sponsors.
• Target date funds. The Department of Labor (DOL) issued guidance highlighting how DC plan sponsors need to ensure target date funds remain appropriate for the plan's participants. Plan sponsors should determine if their participant group has changed. Employers also should take stock of their current target date funds and check if they are still high-quality, appropriate investments, as the market has evolved significantly.
• Plan participants and nonparticipants. DC plan design should be evaluated regularly to ensure it is relevant for the participant base. To do this, employers need to understand their participants' behavior, needs, and priorities. Areas for review include: cluster analysis; assessing participants' financial courage; reviewing how participants are using existing investment options; and relative retirement preparedness. Analyzing nonparticipants is crucial as well so employers can better determine how they can get them to participate.
• Delegation of fiduciary responsibilities. Determine which responsibilities the DC plan sponsor should keep, and which would be better served by delegating to a third party.
• Cyber risks. The question is not if a DC plan sponsor will have a cyber-attack — rather, it is a question of when. Plan sponsors should create a strategy to address and mitigate cybersecurity.
• Retirement income options. An increasing number of DC plan sponsors are open to the idea of retirees taking partial withdrawals from the 401(k) plan. In addition, the proposed Retirement Enhancement and Savings Act of 2016 includes a number of relevant provisions that will spark more conversations.
• Impact of the fiduciary rule. Key provisions of the DOL's fiduciary rule are effective April 10, 2017. Fiduciaries need to monitor whether the rule will roll out as initially anticipated and how a plan's vendors (including the recordkeeper) are changing their services to accommodate the rule. DC plan sponsors need to confirm if the services they selected will actually be the ones provided in the future.
• Appropriateness of fee structures. Focusing on fees is important; however, the discussion should be focusing on fees relative to the services received and the expected benefits of any additional fees incurred. All things being equal, clearly, lower fees make sense but DC plan sponsors also need to assess the best fee structure for their specific needs and objectives.
