Benefits

Institutionalizing DC Plans Can Help Sponsors, Participants

By Kevin McGuinness editors@plansponsor.com | August 16, 2013
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August 16, 2013 (PLANSPONSOR.com) – By institutionalizing their defined contribution (DC) plans, plan sponsors can give their participants better retirement outcomes, a paper contends.

According to “Institutionalizing DC Plans: A Starting Point for Addressing Fiduciary Issues,” from the Defined Contribution Institutional Investment Association (DCIIA), institutionalizing a DC plan can also result in better fiduciary and risk management profiles for plan sponsors and fiduciaries.

“In the simplest possible terms, institutionalizing a defined contribution plan is about designing and structuring the plan with a focus on promoting positive outcome for the plan participants,” Lew Minsky, executive director of DCIIA, told PLANSPONSOR. The paper explains institutionalization as “a broad outcome-oriented mindset that applies beyond investment options and proposed a hierarchy of institutionalization levels for DC plans that included governance, funding, investment structure, engagement and education, and distribution and decumulation.”

The paper builds upon material from a 2011 DCIIA paper, but discusses each hierarchy from a fiduciary perspective, said Minsky. “By doing this, the paper provides plan sponsors and their advisers issues to consider and actions to implement in order to develop a plan that delivers positives outcomes for participants and minimizes fiduciary risk for plan sponsors and other plan fiduciaries. It is an actionable and detailed, step-by-step guide to designing and managing a plan, which shows that you can manage fiduciary risk and deliver positive outcomes. It is our hope that plan sponsor and advisers will use this framework in managing their plans, which will ultimately lead to improved outcomes for participants.”

While the paper talks about a number of actions and processes that plan sponsors should consider, said Minsky, the key message is that these elements are part of an overall process that will benefit both plan sponsors and participants.