Companies Scout Ways to Enhance DC Plans

May 25, 2012 ( - As concern over benefits costs rises, companies also worry about their employees’ ability to save adequately within defined contribution (DC) plans, a Prudential survey found.   

By PLANSPONSOR staff | May 25, 2012

According to “The Future of Retirement and Employee Benefits,” which surveyed senior finance executives this year, a majority of respondents (69%) expressed concern that employees might have to delay retirement because of inadequate savings. Delaying retirement can have an impact not just on employees—it can constrict new hiring and overhang advancement for existing staff.

Executives agreed that DC plans need enhancements and are scrutinizing retirement income, risk-mitigation products and investment strategies to enable more employees to retire as planned.

Robert Tipp, chief investment strategist for Prudential, predicts that bonds will become a more significant part of plan portfolios. “Bonds do better than people expect,” he told PLANSPONSOR. “People expect a zero or negative bond return, but it’s been higher. People need a continuing return on principal, and they are sick of stocks, sick of real estate.”

Companies have been increasing their use of target-date funds within DC plans for the last few years. But there is room for improvement, and 59% of respondents agreed that target-date funds need to be enhanced to prove more protection against a volatile market.

Stable value investments are also becoming more attractive: 57% of executives confirm that their plan participants are expressing more interest in stable value products, which provide principal protection and predictable returns that have historically exceeded the rate of inflation.

Interest in guaranteed lifetime income products is also increasing. More than a third of respondents (41%) said their companies are at least somewhat likely to offer these products in the future, up from 30% in a survey conducted in 2010. The majority of executives surveyed (58%) agreed that providing guarantees in the form of downside risk protection would help DC plan participants stay invested in the stock market.

Jill Cornfield