As the New Year is a time of personal reflection, it can also be a time of reflection for defined contribution (DC) plan sponsors.
Mercer provides recommendations for DC plan sponsors given current market conditions and challenges for the coming year.
“Change is the only constant in today’s market. As such, it is crucial to maintain vigilance over managing DC plans. Governance should always be a key focus, but it’s not a silver bullet,” says Liana Magner, partner at Mercer. “DC plans need to evolve with changes in legislation, regulations, industry trends and the changing needs of individuals. What may have been ideal a few years ago may not be as ideal today.”
Regarding plan design, Mercer suggests that DC plan sponsors should review their participants’ behavior and assess if 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?
In addition, DC plan design should be evaluated regularly to ensure it is relevant for the participant base, Mercer says. 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 non-participants is crucial as well, Mercer contends, so employers can better determine how they can get them to participate. NEXT: Investments and fees