Defined contribution plans (DC plans) are amongst essentially the most common ways for U.S. employees to avoid wasting for retirement. U.S. DC plan programs totaled $9.6 trillion in assets as of the third quarter of 2023, accounting for 22% of total U.S. retirement assets. This creates tremendous responsibility for plan sponsors as they supply and administer retirement advantages on behalf of their employees.
To help sponsors plan, we have put together seven topics that we predict ought to be top priorities of their retirement programs in 2024.
1. Conduct a comprehensive Target Date Fund (TDF) check
Target Date Funds (TDFs) are a particular feature of DC plans: 85% of plan sponsors offer them. These funds are mechanically realigned to turn out to be more conservative as participants approach retirement. For this reason, TDFs appeal to each plan participants in search of a simple approach to managing their retirement savings and plan sponsors who use such funds as their plan’s qualified standard investment alternative (QDIA).
Actually the one 80% of plans have a QDIA, 86% of which use a TDF. Therefore, plan participants often invest their entire account balance in a TDF. Therefore, a robust selection process in addition to careful and continuous monitoring is completely mandatory.
The U.S. Department of Labor (DOL) guidance. “Target Date Retirement Funds – Tips for ERISA Plan Fiduciaries.” describes best practices for TDF selection. Plan sponsors should read the complete guidance before evaluating their TDF. From our own reading of the guide, we identified three key questions plan sponsors should ask themselves. Together, they function a litmus test to find out whether a TDF review is perhaps warranted sooner somewhat than later:
- Did your initial evaluation of investment opportunities consider the company-specific demographics of your workforce?
- Did your initial evaluation include an assessment of multiple TDFs?
- Have you reviewed your TDF selections beyond normal performance monitoring within the last three years?
If the reply to any of those questions is “no,” plan sponsors will probably want to prioritize a TDF review in 2024.
2. Trendy and stylish vs. useful and mandatory
Articles, conference sessions, and webinars that announce recent ideas that make DC plans “better” may be distracting and infrequently blur the road between marketing and thought leadership.
For example, historically most retirement planning communications have emphasized accumulation. In the last two years, they’ve expanded into “decumulation” strategies that give attention to post-retirement events. This has led to a wave of sponsored content promoting plan-linked annuities or “lifetime income products.” Despite the supposed popularity of such products only 9.9% of plans actually offer them to their plan participants.
The industry is within the midst of a rapid innovation cycle driven by the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act of 2022, increasing competition amongst service and product providers, and other worldly trends. It’s an exciting time, and far of what’s being developed could possibly be of great profit to plan participants in the long run. But plan sponsors must maintain discipline and take a holistic, goals-based approach when evaluating trending DC plan products, features and solutions.
3. Offer your employees comprehensive financial education resources
To recruit and retain top talent, plan sponsors must adapt their financial education strategy to satisfy the needs of a various and evolving workforce. Different generations of employees engage with educational content in other ways: some prefer face-to-face meetings, videos and articles, or one-on-one conversations. What resonates with someone early of their profession may not work for somebody nearing retirement. Therefore, plan sponsors must goal, differentiate and vary their training methods to incorporate all of their employees.
A well-managed retirement plan, complemented by comprehensive financial education resources, could be a critical tool for recruiting and retaining employees. Our clients have found essentially the most success when our worker training consultants work with our retirement consultants to develop annual education campaigns that address the varied needs of their employees. A bit planning goes a great distance toward improving participation, engagement, procrastination rates, and other vital metrics.
4. Focus on holistic financial wellness
Inflation and the specter of a looming recession were on many Americans’ minds last yr. Three statistics from a recent PNC survey of firms and their employees underscore this:
- Seven in 10 employees reported feeling financial pressure that negatively impacted their work.
- Three out of 4 employers reported that worker financial stress impacted operations, leading to lower productivity, lower morale and poorer performance.
- Nearly one in 4 (23%) survey respondents have spoken to a financial advisor up to now three years.
Plan sponsors might help employees achieve financial well-being by making their retirement plans greater than only a technique to save. A nuanced emphasis on financial well-being cannot only improve worker financial health, but in addition promote higher productivity and talent retention. Accessing group training sessions through the workday, encouraging the usage of calculators and other online record-keeping tools, and facilitating individual consultations with financial educators are all helpful steps.
5. Evaluate your note taker
The recording industry is rapidly consolidating while struggling to maintain up with a particularly energetic regulatory environment. While some record holders rise to the challenge, others fall behind. As a part of their fiduciary duty, plan sponsors must repeatedly evaluate providers on two key features:
- Services and products. Plan sponsors analyze performance to find out whether improvements are needed. For a record keeper’s participant website, plan sponsors can, amongst other things, survey participants and even test the experience in person. You should document these results a minimum of annually during review meetings and store them in a trust file for future reference.
- Fees. A great fee evaluation process compares a plan’s fees in comparison with other plans with similar asset size and participants that provide similar services to the same number of individuals. We engage an independent fee benchmarking service to offer our clients with this information, which they will then store of their escrow file.
If recordkeeping relationships don’t meet their standards, plan sponsors should consider whether other providers are a greater fit.
6. Defend cybersecurity
As the number and class of cyberattacks increases, firms are educating themselves about how best to guard themselves against fraud. Last yr, 88.2% of DC plans initiated cybersecurity measures. Plan sponsors and participants must remain current on the DOL’s cybersecurity policies. For plan sponsors, the DOLs “Best Practices for Cybersecurity Programs” is a helpful start line.
The DOL guidance highlights plan data as a key concern. We encourage plan sponsors to guage their internal best practices in addition to those of recordkeepers and other plan providers.
Plan sponsors should consider asking their providers every year for details about their cybersecurity practices. Reviewing, documenting this data, and storing it in an escrow file is an easy-to-implement best practice. Plan sponsors could go a step further and work with their record keeper to distribute participant-focused communications to enhance digital hygiene. In our experience, calls to enhance cybersecurity practices have a further profit: they encourage plan participants to log in to their accounts and take part in their retirement plans.
7. Realign governance and compliance
The SECURE 2.0 Act of 2022 received extensive coverage in 2023 and garnered significant attention and bandwidth all year long – sometimes on the expense of other projects and best practices. Plan sponsors can have postponed assessing the record landscape, conducting a TDF review, or analyzing plan design relative to competitors, amongst other things.
The excellent news is that it is easy to get back heading in the right direction. Plan sponsors should discover their goals and set deadlines to make sure they’re taking motion to attain them. We encourage plan sponsors to create a 2024 checklist with their advisor and get to work checking off the boxes as quickly as possible.
Diploma
Plan sponsors play a critical role in administering retirement programs that help achieve positive retirement outcomes for plan participants.
By keeping these seven priorities in mind, plan sponsors can focus their efforts where they’ve the potential to do essentially the most good.
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