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By Mark Olsen, Managing Director at PlanPILOT

By the year 2030, all baby boomers in the U.S. will be over the age of 65. With that threshold looming, along with an ever-changing economic landscape, the retirement planning process is being significantly reshaped. As people retire and expect to live for another 20 to 30 years, the need for sustained income during retirement has become increasingly crucial. As a result, defined contribution (DC) plan sponsors are adapting and seeking innovative solutions, including introducing income options in their plans. Facilitated by the SECURE Act, which eases the perceived fiduciary risks of such options, plan sponsors now have a broader toolkit to better cater to the diverse needs of their participants. 

In this blog, we’ll guide plan sponsors through this shifting landscape, covering key points to consider with this relatively new and increasingly popular plan structure. Our goal is to support you in shaping a retirement plan that is equipped for the complexities of the modern world and tailored to the varying needs of your participants and your company.

Historical Uses of Retirement Plans

Historically, retirement plans like 401(k)s and 403(b)s have been used to accumulate savings throughout a person’s career. These traditional plans have served as vessels for contributions, investment growth, and tax advantages, with the main goal being to build a substantial nest egg by the time of retirement. 

However, these plans didn’t inherently provide a structured way to distribute these savings as a regular income in retirement, instead leaving the retirees to self-manage their funds, often leading to the risk of outliving their savings. Now, with the changing demographics in our country and workforce, the focus is shifting toward incorporating retirement income solutions that also address this decumulation phase.

Understand Plan Participant Needs

Yet with every retirement plan, it’s best to fully understand the needs of your particular participants before undergoing a change to your plan. While a common concern for many retirees is a reliable, lifetime income, other aspects like control over assets, flexibility in case of emergencies, and potential for growth also play significant roles in their decision-making. They may also be looking for features such as death benefits and inflation protection. 

There are also a number of ways to “create” that income from a retirement plan. Some participants might prefer the security of a fixed annuity (which offers a guaranteed income from an insurance company), while others might prefer the potential higher returns of a managed drawdown plan. Therefore, plan sponsors need to have a deep understanding of their participants’ financial circumstances, risk tolerance, and long-term goals to select the most suitable solution.

Criteria for Retirement Income Solutions

When assessing retirement income solutions, there are several crucial factors to consider.  Does the solution offer any type of guaranteed income? While it varies person to person, many retirees prefer this component as it provides the certainty of an ongoing income stream during retirement, offering peace of mind. 

However, some will want the ability to capture potential market upside so they can potentially enhance their income by benefitting from positive market trends. 

Another key factor is liquidity, which provides participants the flexibility to access their funds in times of emergencies or unexpected financial needs. If a retiree doesn’t have an adequate emergency fund outside of their retirement plan, then access to some of their retirement funds becomes even more pivotal.

Longevity protection is also a key consideration, ensuring participants won’t outlive their assets in an era where the average life expectancy is 79 years of age.

These are just a few of the many criteria plan sponsors and participants should consider. A comprehensive understanding of these factors, along with additional ones tailored to the unique needs of the participant base, provides the selection of an optimal retirement income solution.

Participant Education and Support Is Key

As plan sponsors navigate the complex terrain of retirement income strategies, it’s critical to remember that participant education and support form the cornerstone of successful implementation. These solutions, often intricate and nuanced, demand a certain level of understanding to fully maximize their benefits. Robust educational initiatives can aid participants in grasping the mechanics of their selected income solution, including the inherent risks, benefits, and costs, and how it fits into their broader retirement strategy. 

Further, well-rounded participant education can help increase confidence in the plan, and might lower the risk of litigation. In essence, fostering an informed participant base is as critical as selecting an appropriate income solution. After all, an empowered participant is more likely to make prudent decisions that align with their retirement goals, ultimately promoting financial stability in their post-career years.

Should You Implement a Retirement Income Plan?

If you’re a plan sponsor considering the introduction of a retirement income solution, now is the time to take action. The ever-evolving landscape of retirement planning, coupled with the enhanced longevity of the modern workforce, makes it essential to at least consider income solutions that address these realities. 

At PlanPILOT, we take great pride in creating a customized, streamlined retirement plan for sponsors. If you’d like to see if your company and participants could benefit from a retirement income solution, we would love to hear from you. Call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com to get started today.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.

By Mark Olsen, Managing Director at PlanPILOT

We’ve observed a growing demand for defined contribution (DC) plan management. This article offers insight into our experience and provides considerations designed to equip committees to evaluate which DC services might be right for their unique plan needs. 

Defined Contribution Plan Oversight Is a Herculean Task

Plan sponsors have the tremendous responsibility of being stewards of DC plan assets on behalf of their participants. The baseline premise of DC plan oversight—making decisions for the sole benefit of plan participants—is a significant undertaking in and of itself. Adding to the level of responsibility in no small measure is the increased fiduciary scrutiny of legislators and regulators, as well as the ongoing evolution of the retirement landscape. It is no wonder that nearly 59% of plan sponsors use an ERISA 3(21) advisor, a fiduciary consultant or advisor who makes investment recommendations in plan oversight. (1) Further, more than two-thirds of plan sponsors are looking to change advisors. (2)

Our work with plan sponsors has confirmed that DC Plan Consultant services are right for many committees and plans. In addition, sponsors already leveraging the assistance of a consultant or advisor may need help determining if their current partnership is bringing them value based on their unique needs and circumstances. We offer a series of themes below to help committees reflect on their own plan facts and circumstances. 

While this outline is certainly not exhaustive, it does offer a starting point for committees. We believe taking the time to consider these factors can be informative in assessing a DC Plan Consultant partner and selecting one that will enhance your plan’s oversight activities.

Efficiency and Timeliness of Plan Oversight Activities

It is productive for committees to take an opportunity to reflect on the timeline and effectiveness of their plan oversight activities. 

• How are you tracking relative to setting and achieving strategic plan, goals, and objectives over the last 12-24 months?

• • Transitions of key providers (e.g., recordkeeper)
  • Study of retirement readiness metrics of your workforce and making any changes necessary
  • Establishing the role you wish to have in the retirement journey of your workforce, which may impact the Qualified Default Investment Alternative (QDIA), or other offerings

• Is there a process to ensure consistency and timely execution of all plan oversight activities?

• • Adherence to the Investment Policy Statement (IPS)
  • Investment structure review
  • Provider assessment, monitoring, and management (e.g., recordkeeper, custodian)
  • Investment manager monitoring or replacement (e.g., performance, investment guideline, etc.)
  • Fee monitoring and negotiations 
  • Changing investment vehicles (e.g., fund to trust or separate account)

Increased Economic Activity and Market Shifts

The economic environment is overloaded with a series of fundamental shifts, each requiring an increasing need for time and attention. 

• Has your committee considered the following economic themes and how they may impact your plan’s investment structure and/or retirement outcomes of participants?

• • Heightened market volatility
  • Higher inflation
  • Interest rate changes
  • Lower expected returns
• How is your committee taking into consideration the heightened economic activity and market shifts relating to your plan needs?
• Are recent economic events causing concern and/or the desire for increased need for expert engagement and help?

Complexity of Evolving Retirement Landscape

The retirement landscape is evolving rapidly given the extensive role DC plans play in retirement outcomes of today’s workforce. The range of topics in need of study is extensive, but necessary to ensure participant needs are most effectively met.

• Is your committee able to assess offerings based on plan and participant needs?

• • Qualified Default Investment Alternatives (QDIA) evolution (e.g., target-date solutions, managed accounts, hybrid solutions, etc.)
  • Study of glide path suitability underlying the QDIA
  • Evolving implementation techniques (e.g., active investment management, passive investment management, or a blend approach)
  • Increasing interest and demand for retirement income services and solutions
  • Growing interest in Environmental Social Governance (ESG) investments
  • Ensuring cybersecurity practices are intact
  • Increasing demand for financial wellness programs
  • Exploring changing risk/reward profiles and the impact on outcomes (e.g., alternative investments)

Committee Structure

The COVID-19 pandemic has increased the complexity of our world, resulting in significant changes to our workforce. Committee structures are not insulated from these trends; thus it is important to take this into consideration any impact to your plan’s oversight.

• Has your committee experienced reduced resources, committee turnover, etc.?
• Has committee turnover resulted in revisiting, questioning, and/or the need to affirm prior decisions?
• Is the institutional memory intact, and/or does your committee have access to prior decision-makers and the rationale and thought process of prior decisions?

Summary

The complexity of DC plan oversight and the increasing demand of time and attention from committees cannot be underestimated. The expansion of services, solutions, and offerings can be overwhelming to committee members with full-time commitments and competing priorities. What’s more, the critical nature of DC plans providing successful retirement outcomes is more important than ever. Some committees are hitting on all cylinders and not in need of additional help. However, there are many committees who may benefit from adding or even changing their existing DC Plan Consultant to help them better accomplish their plan goals and objectives. Taking time to assess your plan’s unique needs and circumstances and whether additional help is needed is time well spent.

Want to Learn More?

Do you need help evaluating which DC services would be the best fit for your plan? At PlanPILOT, we strive to deliver comprehensive advisory services that help you meet and exceed your fiduciary responsibilities by providing you with the proper risk management solutions and independent advice you need. If this sounds like the type of partnership you’re looking for, call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com to set up an introductory meeting. We look forward to hearing from you!

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k) and 403(b) plan sponsors. Drawing on more than two decades of experience, Mark provides institutional retirement plan consulting to 401(k), 403(b), and defined benefit plans. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.

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(1) Deloitte 2019 Defined Contribution Benchmarking Survey Report

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/human-capital/us-the-retirement-landscape-has-changed-are-plan-sponsors-ready.pdf

(2) Fidelity 2021 Plan Sponsor Attitudes Survey 

https://institutional.fidelity.com/app/item/RD_13569_26306.html