Mercer, a New York-based consultancy, recommends DC plan sponsors focus on the following 11 areas in 2017.
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Employee guidance and tools
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.
The role of 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.
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The ‘signals’ of matching programs
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?
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Managed account programs
DC plan sponsors need to check when they last did a review of their managed account provider. In particular, 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.
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Target-date funds
The Department of Labor 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 should also take stock of their current TDFs and check if they are still high quality, appropriate investments, as the market has evolved significantly.
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Understanding plan participants and non-participants
DC plan designs should be evaluated regularly to ensure they remain relevant for participants. 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, so employers can better determine how they can get them to participate.
The delegation of fiduciary responsibilities
Plan sponsors should focus on what responsibilities they should keep versus what would be better delegated to a third party.
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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
More is happening in this area with an increasing number of DC plan sponsors 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 retirement income relevant provisions, including nondiscrimination relief for closed defined benefit plans and increased savings limits in automatic enrollment arrangements, according to Towers Watson, that will spark more conversations.
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The impact of the Department of Labor fiduciary rule
As things stand, key provisions of the DOL fiduciary rule will be in place effective April 10, 2017. Fiduciaries need to monitor whether the fiduciary 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 being provided in the future.
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Appropriateness of fee structures
Focusing on fees is important, but 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 need to make sure to also assess the best fee structure for their specific needs and objectives.