Considerations to Help DC Plan Sponsors Regroup for the New Year

Mercer says delving into participant data and keeping up with new product offerings, legislation and regulations can help plan sponsors improve their retirement programs in 2022.

Keeping an eye on participant data will help defined contribution (DC) plan sponsors hone their plan designs and communications in 2022, Mercer says in its “Top Considerations for Defined Contribution Plans in 2022” white paper.

“This includes considering how demographic and environmental characteristics may influence participant needs,” Mercer says. The report notes that recordkeepers are at the ready to use technology to make participant experiences more personalized.

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“Sponsors should stay up to date on offerings from both their current administrator and the broader DC space to determine which solutions may be the most relevant for their populations,” Mercer says. It reminds plan sponsors that cybersecurity is on the Department of Labor (DOL)’s radar, so they should continue to evaluate providers to make sure participants’ personally identifiable information (PII) is safeguarded.

DC plan sponsors should also keep up with investment product evolution, Mercer suggests. The introduction and use of retirement income solutions for participants is progressing, as is the view of the appropriateness of environmental, social and governance (ESG) investing within retirement plans. The report suggests that sponsors should review investment menus with an eye toward what participants need.

They should also ask whether participants would benefit from investments that generate retirement income and which products are appropriate; whether the plan’s investments offer inflation protection for participants; whether participants would benefit from investment advice through managed accounts; and more, according to the white paper.

On the topic of investments, Mercer points out that the stock market growth of the past year has not been all good news for plan sponsors.

“As certain asset classes have performed strongly in 2021, some investment managers, such as small-cap equity managers, have become capacity constrained and sponsors have been left with gaps in their investment lineups as investments strategies have closed,” the report says. “Fiduciaries should consider whether custom, multi-manager portfolios may provide better flexibility for growth in assets, in addition to improved diversification.”

Considering all that DC plan fiduciaries have to keep up with, outsourcing tasks is becoming more popular. Mercer notes that policymakers recognize the burdens on plan sponsors, as evidenced in the provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act that created pooled employer plans (PEPs). “The spectrum of outsourcing solutions has expanded and sponsors may wish to review available options as needs change,” the report says. It notes that outsourcing some aspects of DC plan management could help with the soaring cost of fiduciary liability insurance.

On the topic of providers, Mercer says that as recordkeeper consolidation continues, it might put pressure on plan sponsors to standardize their DC offerings, making it harder to differentiate their benefit offerings for potential candidates. However, Mercer expects recordkeepers to continue to innovate their offerings.

On a final note, Mercer suggests that DC plan sponsors stay informed about proposed and finalized legislation and regulations to be ready to adjust retirement plan features and communications or to take advantage of opportunities to improve plan design. Among the questions it says plan sponsors should ask is, “How do we evolve our retirement strategy in light of these proposals to meet the needs of our entire population, from executives to entry-level employees?”