10 New Definitions for DC Plan Vocabulary
As DC plans continue to grow in size and complexity, the retirement industry needs to keep up and redefine terms to better reflect the new environment, Willis Towers Watson says in a new report.
Picking up where they left off with their 10 new definitions for DB plans
, the firmís new report identifies 10 DC plan terms that the firm argues are out of date and, instead, offers new definitions
that it believes are more robust and accurate.
"DC program designs are evolving to better meet employersí workforce and financial objectives. Rothification, HSAs, custom contribution schedules, employer match on student loan repayments - these are some of the trending emerging design features that can potentially improve participant retirement outcomes while optimizing an employerís return on investment," the firms says in the report.
To that end, developing a set of plan investment and design beliefs that are an agreed set of guiding principles that drive plan sponsor decisions is more important than ever, the firm submits. The authors note that, while they aim for the definitions to become the industry standard, they realize that some might disagree with their interpretations, suggesting that it is valuable to educate each other on differences of opinion and to find areas of common ground.
The 10 new, modern plan definitions suggested by the firm include:
"Primary or even sole retirement benefit. Customized design focused on retirement adequacy, particularly for participants that are approaching retirement. The plan is structured to be cost sustainable, aligned to the business strategy and supports the employers' workforce and financial priorities."
"Successful participant retirement outcomes. Ability of participants to retire at normal retirement age. Measured by individualized retirement readiness metrics capturing health care costs, tax efficiency and lengthening lifespans. Custom scorecards that identify workforce gaps in financial well-being and retirement preparedness. Business analytics that measure the cost of financially stressed employees and the risk of a 'stuck' workforce."
Plan risk factors: "
Old risk factors plus: workforce bottleneck caused by employees who can't afford to retire. High cost of financially stressed employees with low engagement, high absenteeism and poor health. Class action lawsuits creating reputational and financial damage related to employee disclosures, investment-related fees, and overall program costs."
Participant inertia: "
Leveraging participant inertia to improve retirement outcomes: auto-enrolling, auto-escalating, rebalancing or reenrolling participants. Using behavioral economics to encourage positive retirement saving behaviors. Delivering personalized, smart suggestions to participants that resonate and are easier to implement."
"Multi-channel push and pull communication tactics that leverage technology to deliver relevant, customized messages and a call to action based on segmented demographic data, including generational differences and other behavioral metrics."
"Targeted outreach utilizing employee segmentation and multiple communication channels based on various factors, including demographics, life-stage saving behavior, retirement readiness, preferences, financial stress, etc."
QDIA and TDF selection: "
Dynamic option - multiple QDIAs that evolve to meet participant needs in each phase, such as converting from TDFs to managed accounts to retirement income solutions as participants approach and then move into retirement. Sponsors seeing the value in unbundling key decision points (glide path, portfolio construction and implementation) to design a tailored TDF series to plan needs."
Participant investment decisions: "
Simplified and streamlined approach to investment menu construction emphasizing professionally designed and managed portfolios. Participants focus on saving and staying the course, not on investment-related decisions for which they are usually ill-equipped."
Investment decisions for plan fiduciaries:
"Committees delegate investment decisions and related fiduciary responsibilities to investment professionals whose primary focus is managing DC plans. Prudent experts from the delegated provider make the investment decisions allowing committees to focus more on overall strategy rather than investments. Delegation of investment decisions to the prudent expert enhances risk management for the plan's named fiduciaries."
Diversification and investment solutions:
"Greatly streamlined investment menu using off-the-shelf or custom multi-manager options focused on participant retirement objectives. Complexity is imbedded inside the options with the design, implementation and management decisions delegated to investment professionals as prudent experts and fiduciaries. This can offer improved investment propositions, lower costs and reduced complexity for participants and plan fiduciaries."