6 priorities for plan sponsors in 2021
A new Mercer report suggests plan sponsors focus on participant-centered goals, which starts with not simply assuming you know what they want.
In the wake of a pandemic that highlighted the importance of being prepared for anything, plan sponsors must approach the coming months with both resiliency and an evolutionary thought process. As if the pressures and disruptions of COVID-19 were not enough, class-action lawsuits targeting 401(k) plans have skyrocketed in just two years, and a new level of regulatory activity is altering environmental, social, governance (ESG) investing, proxy voting and the fiduciary rules.
Mercer, in a new report titled “Reinventing Retirement: Defined Contribution Plans 2021 Priorities,” outlines six areas defined contribution (DC) plan sponsors should prioritize this year. The report calls for plan sponsors to take participant-centric action while remaining flexible.
Following are Mercer’s six priorities for plan sponsors this year.
1. Don’t assume you know what your participants want.
Mercer said plan sponsors should review participant demographics and key behaviors across all benefits, with a special focus on how they accessed COVID-19 programs like CARES Act withdrawals and loan provisions.
This data can provide valuable insights into the types of external financial pressures participants experienced during the pandemic.
In addition, sponsors should take a fresh look at DC plans through a lens of diversity, equity and inclusion and consider plan design changes and communications strategies that reflect those findings.
2. Aim for plan design that provides true benefits to participants.
Participants typically fall into the accumulation phase or the retirement phase of saving for retirement. While a large amount of focus has been placed on accumulation, COVID-19 has taught us that many people lack the short-term resources to address a financial crisis.
Participants who relied on their retirement plans to address immediate financial needs may find they are even further behind in saving for retirement. As such, plan features that focus on building emergency savings could be as beneficial to retirement security as accumulation, said Mercer.
In addition, those nearing retirement could benefit from help with deciding what to do with their retirement savings. Mercer recommends sponsors add a retirement tier to their program that simplifies these decisions.
3. Capitalize on the acceleration of digital.
If we were plodding toward a more digital world two years ago, COVID-19 gave us all a giant push. With many in the workforce sent home to work remotely, technologies like Zoom and paperless transactions became not only the norm but a necessity.
Plan sponsors should take advantage of this dynamic to stage more frequent, targeted and cost-effective engagement strategies, said Mercer.
The firm noted it has observed an increasing trend toward digitization with recordkeepers, many of whom are providing digital advice, and it doesn’t expect that trend to slow down.
4. Keep an eye on consolidation.
Fee compression and increasing technology spend have led to a dramatic wave of consolidation among recordkeepers, said Mercer. Given the recent spate of litigation targeting DC plans, sponsors need to be diligent about overseeing current providers and constantly evaluating alternatives.
That oversight extends to understanding the underlying technology platform used by the recordkeeper and their shift to the cloud.
While benefits will eventually come from this model, in the meantime it is important to be aware of the challenges that may come along with it.
And don’t forget about ensuring cybersecurity controls are up to par, especially given the Department of Labor’s new focus on cybersecurity.
5. Remain open to outsourcing to alleviate administrative burden.
A recent study by Mercer found that half of plan sponsors are spending less time on their retirement plans than they would like to.
Outsourcing can mean anything from execution of plan sponsor administrative tasks and vendor oversight to outsourcing investment management responsibility.
The emergence of pooled employer plans (PEPs) this year could provide a new way for sponsors to offload some of their administrative responsibilities and in some cases for participants to access greater high-quality investment options.
6. Invest in learning about investment options.
Following a disruptive year, now is an ideal time to assess and strengthen your investment lineup. Mercer noted white label or multimanager investment options could smooth out returns, improve diversification, streamline investment choices and eliminate overlap.
Alternatives are a way to potentially improve the risk-return profile for participants, and sponsors should ask their target-date fund manager if alternatives will be included in their strategy.
Be aware of ESG investment trends, especially with the Department of Labor taking an increased interest in including ESG in regulations while not enforcing the previous administration’s regulation.
And finally, Mercer recommends understanding the diversity, equity and inclusion goals of service providers, including investment managers, but understand that financial interests should not be subordinated to non-financial goals.
With these priorities in mind, Mercer said plan sponsors should always be aware of new legislation that could impact the retirement space, as well as continued litigation and political changes that could revise regulatory activity and the retirement agenda.
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics. Kristen graduated from the University of Missouri with a degree in journalism.
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