Mercer has issued a white paper laying out goals for defined contribution (DC) plan sponsors for 2019. The priorities are centered around three key themes: 1) Secure your foundation, 2) Achieve greater prosperity and 3) Inspire confidence.
By “secure your foundation,” Mercer means that it is imperative for plans to have a strong governance framework in place. By “achieve greater prosperity,” Mercer urges sponsors to improve participant outcomes. And by “inspire confidence,” Mercer is calling on plans to address individual needs.
As for the first theme, Mercer says that plans can start by monitoring plan fees. The consulting firm says that sponsors need to ensure that the fees that they are paying to vendors are market competitive and have been recently reviewed. Sponsors also need to check to see if there are lower-cost funds available and to determine whether their method of allocating fees (per participant versus as a percentage of assets) is appropriate. Finally, sponsors need to ensure that they are disclosing fees clearly to participants.
Next, Mercer calls on sponsors to prepare for audits by the Department of Labor’s Employee Benefit Security Administration, starting by making the effort to find missing participants. If funds have been put on a watch list, has the sponsor followed up with a review and/or action?
Mercer reminds sponsors that governance matters, particularly as lawsuits against retirement plans are still on the rise. If the sponsor does not have the expertise or resources to effectively carry out these responsibilities, they should outsource them by hiring an Employee Retirement Income Security Act (ERISA) attorney or retaining an outsourced chief investment officer (OCIO) 3(38) fiduciary. “Whatever the intended approach, sponsors should not delay carrying out responsibilities that could result in litigation,” Mercer says.
As for the second theme of helping participants achieve greater prosperity, Mercer reminds sponsors that a sound plan means doing more than examining fees. In some cases, actively managed funds, which are more expensive, can be appropriate for a plan, as can alternatives. “Personalized asset allocation comes at a price but may be beneficial if asset allocation is the driving force behind variability of returns,” Mercer says.
Mercer calls on sponsors to increase diversification through multi-manager funds provided through a white label structure. Sponsors should also consider managed accounts, Mercer says. Today’s offerings can automatically input information about participants into their management, removing the issue of employee engagement. “As participants’ financial pictures become more complex, managed accounts can become increasingly attractive,” Mercer says.
The consulting firm also asks sponsors to consider offering products, solutions and tools to help participants as the near and enter retirement. Mercer also asks sponsors to consider offering environmental, social and governance (ESG) funds.
As far as inspiring confidence is concerned, Mercer says sponsors need to look at the needs of various demographic groups and consider offering other savings solutions besides the 401(k) plan, such as assistance paying down student loans and health savings accounts (HSAs). Financial wellness programs are also important, Mercer says.
Mercer’s report can be downloaded here.
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