“The Path Forward: Importing Winning DB Strategies into DC Plans,” the third installment of Northern Trust's research series on the future of DC plans, pinpoints best practices from investment models used by pension plans, endowments and foundations, and identifies how they can be implemented by DC plans to improve retirement outcomes for participants. Executing a more disciplined investment approach, designing more efficient fee structures and encouraging participants to maintain their assets in the plan structure after retirement would all help to improve results in DC plans, Northern Trust found, but the survey also identified hurdles to implementing these practices, including resistance to perceived changes to benefits and concerns over fiduciary liability.
Nearly 70% of plan sponsors interviewed are optimistic that DC plans are capable of providing sufficient retirement income to working Americans. However, respondents also believe that DC plans could improve their chances of participant success by importing winning strategies from institutional investors, including:
- Investment Approach: Establish a streamlined investment menu that includes simplified pre-mixed default options, access to alternatives and cost effective investment strategies.
- Fee Structure: Minimize overall participant cost by utilizing institutional investment vehicles, maximizing the plan scale, conducting regular fee benchmarking and reducing or eliminating revenue sharing.
- Governance: Dedicate appropriate resources and attention in proportion to DC assets invested, create efficient decisionmaking process and be mindful of fiduciary liability.
- Decumulation: Enhance the plan’s decumulation strategy by providing education about distribution options, offering appropriate asset preservation and income generating investment products, and maintaining an ongoing dialogue with retirees.
- Communication: Maintain lifetime engagement with participants through personalized communications clearly focused on specific outcomes.