A majority of U.S. employers are eyeing innovative features for their defined contribution (DC) plans to boost their value, fortify retirement savings and enhance employees’ overall financial wellbeing, according to a survey by leading global advisory, broking and solutions company Willis Towers Watson. The survey also found employer interest in lifetime income options is accelerating as plan sponsors look for ways to help employees generate a steady flow of income in retirement.
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The 2020 U.S. Defined Contribution Plan Sponsor Survey found two in three employers either have or are very interested in adding at least one innovative design feature to their plan. The most popular feature reported is employee assistance with building emergency funds for rainy days through after-tax contribution provisions. Other features employers have adopted or are considering are student loan repayment options linked to the DC plan as well as allowing employees to choose between a variety of benefits, including DC plan contributions.
“Providing employees with a financially secure retirement goes beyond enrolling them in a DC plan,” said Alexa Nerdrum, managing director, Retirement, Willis Towers Watson. “Employers recognize the financial stress their employees are facing and understand the support a robust DC plan can bring during employees’ working years and in retirement.”
The survey also found momentum for lifetime income options to help generate a steady stream of income in retirement from DC plans is accelerating. Interest in lifetime income solutions has increased fourfold since 2017, indicating an increased focus on retirement spending, not just retirement savings. Roughly three in 10 employers currently offer or are considering offering a lifetime income in-plan option.
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Other findings from the survey include:
- DC fee litigation: The vast majority (80%) of plan fiduciaries report that managing fees is a major priority. This represents a double-digit (14-percentage-point) increase over the past three years as lawsuit activity targeting DC fees has continued unabated.
- Risk management: Over a third of respondents (37%) indicate managing the cybersecurity of participants’ accounts is their top risk management and fiduciary concern. About one in four (24%) is very concerned over the selection and monitoring of investments and keeping plan fiduciaries current on regulatory and market trends.
- Target–date funds: There is a growing focus on target-date fund (TDF) “fit,” with the survey finding a 53% increase in the number of committees reviewing TDF suitability with participant needs.
- Delegated investment consulting: The percentage of plan fiduciaries that use delegated investment consulting services has more than doubled over the past three years from 6% in 2017 to 15% this year.
- Reinstating employer contributions: The majority of employers that suspended or reduced employer contributions this year expect to reinstate them by 2021, with 60% reinstating the contributions at the same level as prior to their suspension/reduction.
- Inclusion and diversity: Close to two-thirds of employers have reviewed or plan to review various aspects of their DC plan as part of their inclusion and diversity strategy.
- Fees: Three in four respondents (75%) have benchmarked their recordkeeping fees over the past three years, with many seeing meaningful results. About two-thirds (64%) reported their benchmarking resulted in lower administrative fees, while a third (32%) were able to reduce investment expenses.
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