New Year's Resolutions Defined Contribution Plan Sponsors Should Make
NEW YORK, NY, January 13, 2011 -- Mercer has published its "10 for 2011" checklist of New Year's resolutions that US defined contribution (DC) plan sponsors should make now to address investment and plan-design concerns, fulfill fiduciary responsibilities and help participants meet their retirement objectives.
2011 is likely to be a year of transition as the economic recovery slowly gains stronger footing. Despite the improved economic outlook, however, baby boomers face meaningful challenges as they begin the transition to retirement, while younger workers continue to struggle with prioritizing retirement over short term financial needs. Sponsors have the challenge of constructing programs that address the very different needs within their participant populations while complying with a new round of significant regulatory requirements.
"Investment line ups continue to evolve as plan sponsors work to best meet the needs of participants," said Toni Brown, Partner in Mercer's Investment Consulting business. "For 2011 in particular, sponsors may want to consider offering an inflation hedge option; evaluate spend-down products that seek a balance of growth, capital preservation, and liquidity; and look to October for the results of the Federal government's study on stable value wrap contracts."
"Over the past several years, there has been greater policy attention and regulatory scrutiny around DC plans as these become the sole retirement vehicle for many Americans," said Amy Reynolds, Partner in Mercer's Retirement, Risk and Finance business. "Plan sponsors are continuing to evaluate Roth options and other low cost design features while evaluating the impact of recent automation trends. We foresee that 2011 is going to continue to be a challenging year as new disclosure rules will be a key area of focus for sponsors and their record keepers. Looking forward, we expect continued focus by participants and regulators on defined contribution plans. Sponsors need to stay abreast of changes and trends, and respond appropriately."
Mercer's "10 for 2011" New Year's resolutions for DC plan sponsors:
1. Participant Fee Disclosure
New rules are coming in 2012. Determine what's required, who's responsible and how to integrate the new requirements with other plan communications.
2. Fee Oversight
Establish a policy for ongoing fee benchmarking. Receive all required disclosures. Document your oversight in a fee policy statement.
3. Stable Value Wrap Contracts
A joint study by Federal regulatory agencies (to be completed by October 2011) will determine whether stable value wrap contracts are exempt from the swap restrictions of Title VII of the Wall Street Reform and Consumer Protection Act (current wraps are grandfathered). Should capacity exist, make increased diversity in your line up a priority in 2011.
4. Inflation Hedge Option
Consider adding a diversified inflation hedge option to your line up. Evaluate a diversified option versus a Treasury Inflation-Protected Securities (TIPS) option. Near-retirees benefit most from inflation hedging options.
5. Retirement Income Solutions
New retirement income products and modeling tools continue to hit the market. Plan sponsors should understand the available solutions to determine if one or more are appropriate for their demographics.
6. Participants Nearing Retirement
Investment performance is critical for near-retirees. Do their investment strategies match expected spend-down needs? Would retirement planning seminars and other assistance reduce financial anxiety (and its drag on productivity)?
7. Roth 401k Contributions
In tough economic times, consider a low-cost plan enhancement, such as a Roth, that expands financial opportunities for participants.
8. Managed Accounts and/or Investment Advice
Should you offer participants advice or managed accounts (or both)? Should you take advantage of improved access to custom target date funds, which allow tailored glide paths based on your core options?
9. Auto Features
"Set it and forget it" doesn't work for plan sponsors! For example, should auto-enrollment contribution rates be increased? Are vesting and withdrawal provisions still appropriate for your organization?
10. Plan Operations
The Internal Revenue Service and Department of Labor are focusing on defined contribution plan compliance and recommend periodic review of plan operations both against the terms of the plan and against governmental requirements.
About Mercer
Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer's investment services include investment consulting and multi-manager investment management. Mercer's 20,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York and Chicago stock exchanges. For more information, visit www.mercer.com.
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