Sponsors Adopt New Strategies to Improve DC Offerings

April 23, 2007 (PLANSPONSOR.com) - A new report from Greenwich Associates reveals defined contribution plan sponsors are taking steps to improve their retirement plan offerings since DC plans are no longer considered supplemental to defined benefit offerings and are not providing financial security needed by retirees.

“DC plan sponsors are adopting automatic enrollment, they are incorporating products that improve investment returns throughout the course of an employee’s working years, they are switching to institutional products that minimize fees and they are taking steps to maximize both their own contributions and those of participants,” said Greenwich Associates consultant Chris McNickle, in a press release. Plan sponsors are adopting new products and strategies as they realize their DC plans are now the most important aspect of their employees’ financial well-being in retirement.

Roughly 20% of companies with DC plan assets of $250 million or more have adopted automatic enrollment and another 17% said they have plans to do so, Greenwich Associates found. Adoption of the automatic enrollment provision has been even more rapid within smaller plans, with 28% using automatic enrollment and another 24% planning to do so.

There is also a growing proportion of plans that are offering target retirement date and lifecycle funds as part of participants’ investment menu, the release said. Further, Greenwich Associates found employers are increasing their own contributions to employees’ DC accounts.

Some 95% of U.S. companies with plan assets of more than $250 million make matching contributions to their DC plans, as do 84% of smaller plans. Among large plans, nearly one in 10 said they increased their matching contributions over the past 12 months, and another 13% said they plan to increase contributions over the next one to three years. Among smaller plans, 12% have recently increased their contributions and 16% said they have plans to do so.

The report points out the focus on increasing the effectiveness of DC offerings is brought on by the combination of increased life spans, diminished DB offerings and the weakening of the social security system.