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One issue with TDFs unfolded after the Pension Protection Act (PPA), which allowed employers to automatically enroll new hires, and also to automatically default participants who did not select investments into a TDF. This left many older employees not invested in a TDF, creating a higher risk. The solution, BlackRock said, is to hold periodic re-enrollments where all employees have the chance to be enrolled in a TDF. Re-enrolling can also allow fiduciaries to take advantage of the QDIA safe harbor. According to BlackRock, studies show that most participants make no or few adjustments to their accounts; tenured employees do not benefit from new defaults; and re-enrollment is an easy way to improve outcomes. The issue of “tomorrow,” or retirement income, involves questions such as how does a participant generate income, should they buy an annuity and how long will they live? There is great confusion about how retirement income options work within DC plans, but there is evidence that participants want them, BlackRock said. In its DC survey, 86% of participants favored an income solution in their retirement plan, and 85% found a fund with a guaranteed income feature appealing. To address this, in-plan income options must be explored and sustainable income sources in a low-yield environment must be found.Ultimately, the risk lies in not taking action, BlackRock said, because no action leads to an uninformed work force.
One issue with TDFs unfolded after the Pension Protection Act (PPA), which allowed employers to automatically enroll new hires, and also to automatically default participants who did not select investments into a TDF. This left many older employees not invested in a TDF, creating a higher risk. The solution, BlackRock said, is to hold periodic re-enrollments where all employees have the chance to be enrolled in a TDF. Re-enrolling can also allow fiduciaries to take advantage of the QDIA safe harbor. According to BlackRock, studies show that most participants make no or few adjustments to their accounts; tenured employees do not benefit from new defaults; and re-enrollment is an easy way to improve outcomes.
The issue of “tomorrow,” or retirement income, involves questions such as how does a participant generate income, should they buy an annuity and how long will they live? There is great confusion about how retirement income options work within DC plans, but there is evidence that participants want them, BlackRock said. In its DC survey, 86% of participants favored an income solution in their retirement plan, and 85% found a fund with a guaranteed income feature appealing. To address this, in-plan income options must be explored and sustainable income sources in a low-yield environment must be found.
Ultimately, the risk lies in not taking action, BlackRock said, because no action leads to an uninformed work force.
Kristen Heinzingereditors@plansponsor.com