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Defined contribution plans could use some work from plan sponsors, according to a new report from Willis Towers Watson, specifically in the areas of financial well-being, investments and compliance, if they're going to be the most help to employees in 2020 and the years to come.
According to the report, while plan assets are definitely on the rise—having risen "about 90 percent between 2007 and mid-2019," and are projected to continue to increase—plans themselves need an assist if they're to provide the greatest benefit to participants.
|1. Design plans to address employee financial stress
When it comes to financial well-being, the report says, employers need to evaluate the level of financial stress under which their employees are working. If they don't know the areas giving workers the most trouble, they aren't properly equipped to help out in ways that will be of the most help.
They also need to consider providing the tools and even financial coaching that will enable employees to make better decisions and achieve their goals. Tools that nudge them toward the right decisions, rather than decreeing objectives that may be unobtainable, and coaching that doesn't "judge" employee choices can help guide them toward better—and more achievable—objectives.
In addition, changes to the design of the plan itself that can provide a side account, perhaps, for rainy-day funds and that back it up with auto-deductions to take the effort out of saving, as well as provisions that can help with student loan debt—a common threat to retirement saving—can make retirement goals more realistic and help employees stick with a plan.
|2. Diversify assets
The investments in retirement plans need to work harder as well, says the report, particularly since the overly optimistic projections of years gone by are both unrealistic and unachievable today. The report suggests the use of more diversified assets, such as "direct real estate, public equity and hedge funds," perhaps contained within target-date funds, "to unlock potentially superior investment returns."
Plans must be sustainable, with contained costs—perhaps through lower-cost institutional portfolio management—and with changes engineered to be "the most sustainable for employees in all stages of life." Particularly since employers are now encouraging workers to leave their retirement plan assets in place after retirement, there has to be a benefit for them to do so.
|3. Get compliance assistance
When it comes to compliance, hiring an outsourced chief investment officer to deal with the complexities of investments, the need to satisfy fiduciary standards, the addition of new features such as health savings accounts and the benchmarking and monitoring of plan performance—as well as the need to be prepared to cope with greater cyber risk—can provide sponsors with a way to keep plans beneficial for employees into 2020 and beyond.
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
