Plan Sponsors Balance Budget Pressures, Risk, Participant Demands

Defined contribution plan sponsors are prioritizing participant outcomes while also balancing competing priorities, according to part of Mercer’s 2025 DC Practices Survey, Voice of the Plan Sponsor, released today.

Ensuring regulatory compliance and reducing plan costs were toward the top of sponsors’ lists of concerns but, nonetheless, came in behind expanding financial wellness programs. An average of six out of 10 respondents said that helping employees achieve their financial goals is their retirement program’s primary objective. Nearly all reported relying on their recordkeepers to provide financial wellness services, and almost all reported general satisfaction with their programs’ performance.

Costs come in the form of “plan costs”—how much the employer pays to support the plan—and “employee costs” borne by participants, according to Holly Verdeyen, Mercer’s U.S. defined contribution leader. She says plan sponsors are focused on outcomes such as providing “value for fees” and prioritizing plan “performance over fees.”

While three-quarters of plan sponsors said they expect increases in their organization’s spend on retirement benefit offerings over the next year, 70% are also pursuing cost reduction strategies, including changes to plan design, Verdeyen says. While budget increases are a “good thing,” they could simply stem from rising IRS contribution limits due to inflation and SECURE 2.0 Act of 2022 regulatory changes, including increased catch-up contribution provisions.

Nearly one out of five sponsors reported faced plan litigation in the past five years. As a result, some DC plans are looking to pay more expenses on behalf of participants to “mitigate fiduciary risk,” says Verdeyen. When a sponsor pays a participant’s expenses, they are less of a target for fee-related litigation—but their budget must go up, she explains.

“More plan sponsors with over a billion dollars [in plan assets] will be tested with litigation than [those with] less [than $1 billion],” says Verdeyen.

Pooled employer plans are “moving up-market rapidly” to help manage costs, Verdeyen says. When asked whether they were considering switching to a pooled employer plan from their single-employer plan, 36% of respondents said yes, 33% said no and 31% said not at this time.

Mercer’s research found sponsors are trending toward outsourcing, generally, with an average of eight out of 10 turning to advisers and consultants to simplify complexity and manage fiduciary risk.

Employers also are looking to artificial intelligence as a “transformative force” for plan management, according to the survey. Nearly half said they believe it will have the largest impact on their plan’s success in the next three to five years. Two-thirds reported actively exploring or beginning to implement AI and advanced analytics to support their plan, such as by automating administrative tasks like enrollment and compliance-monitoring.

Plan sponsors’ “focus on financial wellness, supported by AI and external fiduciary expertise, reflects a commitment to improving participant outcomes and plan governance while still managing costs,” the research concluded. “As AI and technology continue to evolve, plan sponsors who implement these tools thoughtfully may be well positioned to meet their program objectives in the years ahead.”

In July, Mercer collected survey responses from DC plan decisionmakers representing 225 companies.