As a sponsor of a defined contribution (DC) plan, have you felt increasingly responsible for participants’ financial well-being and success in retirement? Do you break into a cold sweat when someone starts talking about excessive fee litigation and your fiduciary responsibilities? Are you feeling stressed at the thought of handling manager underperformance? If you do, you are not alone.
Fiduciary rules clearly state that the decisions a sponsor makes need to put the interests of participants first. Beyond the investment and operational duties, this means that plan sponsors must also place priority on improving participant outcomes. Our experience and recent surveys show sponsors aligning with this approach. Rather than simply negotiating plan fees with a “race to the bottom” approach, sponsors are starting to integrate three major levers within their control or influence: improving participant engagement and decision-making, adopting strategies that enhance returns and prudently reviewing fees.
With this in mind, we present some of the major trends Mercer believes warrant consideration as the Top Priorities for 2018.
Ensure a foundation of sound plan management
Conduct a financial needs analysis for your employees
Target your engagement efforts
Establish success measures
Consider ESG options
Explore a combination 401(K)/rainy day fund
Increase diversification through multi-manager/white-label funds
Consider financial wellness solutions
Evaluate managed accounts
Examine retiree-focused tools and investments
The fastest-growing trend in DC plan management is the move to delegating responsibilities to a professional organization. In fact, in a recent PIMCO DC Consulting Survey1 conducted in 2017, “perceived mitigation of fiduciary risk (e.g. litigation)” was seen as the top expected driver of growth in delegated/ outsourced CIO services. Although much of the delegation has occurred with investment 3(38) services, professionals are also increasingly taking on the role of “named fiduciary” under ERISA.
We believe that delegation is more than just risk mitigation. We see that delegated/outsourced CIO services can potentially improve participant outcomes through simplified investment structures, better-diversified investment options, lower fees and more.
1 PIMCO Defined Contribution Consulting Support and Trends Survey, April 2017.