Plan Sponsors Ask…Participant Communication and TDF’s

By January 3, 2017

 Q: We’re worried about our employees’ financial well-being and how it impacts their retirement readiness, or lack thereof. We want to be proactive and offer more benefits to help them retire when and how they want. What can we do?

A: You’re not alone in your concerns and desires to help your employees. In fact, a recent survey from Willis Towers Watson found that many U.S. plan sponsors feel the same way. And many are focused on offering better benefits to help foster retirement readiness in the next two years.

Willis Towers Watson’s Retirement Plan Governance Survey of more than 300 employers discovered that 39% of employers who offer a defined benefit (DB) or defined contribution (DC) plan believe their employees’ retirement readiness is at risk today. Moreover, 44% see it as a risk two years from now. With increasing numbers of employers offering DC plans as their only retirement benefit, they’re seeking additional resources to promote retirement readiness. In fact, employees’ inability to retire in a timely manner is the top risk for six out of 10 plan sponsors. Currently, most employers are focused on plan governance resources like investment fee monitoring (74%) and manager performance (61%).

However, plan sponsors are working to prioritize offering quality benefits and monitoring participant behaviors, and their numbers are expected to more than double from 18% to 38% by 2018. It’s clear that DC plan governance is becoming more holistic, encompassing not only investments and fees, but participant behaviors and how plan design influences retirement readiness. It’s a necessary shift, and a good move for plan sponsors and participants alike.

See more of Willis Towers Watson’s findings online.

Q: What are some key topics to address when communicating to employees about preparing for a more successful retirement?

A: We’re glad you asked. Aon Hewitt just answered this question concisely and succinctly in a fun infographic titled “Top Questions to Ask When Preparing Employees for a Financially Successful Retirement.” It illustrates four specific and critical questions to ask, including discussions on how much employees need to retire and maintain their current standard of living (11 times their final pay, on average), how much they should be setting aside for retirement (17% of pay) and more.

Visit http://tinyurl.com/AonHewittRetirementQuestions to check out the whole infographic.

Q: We’ve been hearing a lot about custom target date funds. What are they, and could they be right for our plan?

A: Yes, you’re right — the industry is buzzing about custom target date funds (TDFs), and some believe they could be the next best qualified default investment alternative (QDIA).1 Essentially, custom TDFs go beyond traditional off-the-shelf offerings by incorporating funds from the plan’s existing lineup and accounting for unique plan participant demographics. They’re more of an open architecture solution.

However, there are several factors to consider before switching to a custom TDF offering, including your plan’s asset size, the inherent complexities of custom products, fees, investment risks, the funds’ asset allocation, your fund manager preferences, etc.

Ultimately, it’s your choice, but just like with any change to  your plan’s investment lineup, be sure to consult with your retirement plan advisor if you have one, do plenty of due diligence on the custom TDF solution you’re considering, and make sure it’s the right choice for your plan and participants before taking the plunge.

Learn more about the advantages and potential pitfalls of custom target date funds at http://tinyurl.com/CustomTDFs.

 

1    The principal value of Target Date Funds is not guaranteed at any time, including the target date.