AB Outlines Six Ways to Improve DC Plans Markedly

The first step, AB says, is to replace TDFs from recordkeepers with open architecture, next-gen TDFs.

While some plan sponsors may be waiting for Washington to settle on new tax regulations for defined contribution (DC) plans, there are steps that they can be taking to improve their plans now, AB says in a new blog, “Six Steps to Take DC Plans to the Next Level.”

The first step, AB says, is to replace proprietary target-date funds (TDFs) from recordkeepers as the qualified default investment alternative (QDIA) with TDFs that use open architecture, and, in some cases, lower cost collective investment trusts, customized glide paths and in-plan guaranteed lifetime income.

If the plan is not already automatically enrolling participants and escalating their deferrals each year, AB says, it should be. Thirdly, sponsors should consider offering a financial wellness program to prompt their participants to become more engaged.

While using a QDIA and automatic enrollment are beneficial, AB says, sponsors should also revisit their investment lineup for those participants who want to select their own investments.

Fifth, sponsors should make sure that their retirement committees receive fiduciary training, and sixth, hire an adviser or consultant, if they aren’t already working with one. “This is especially important for plans with less than $50 million in assets,” AB says. “Smaller-size plans that employ a financial adviser fare much better than those that don’t—showing higher participation rates, higher average savings among participants and more participants improving their retirement readiness.”