By Mark Olsen, Managing Director at PlanPILOT

This article offers insight into a growing area of focus for plan sponsors, which is whether or not retaining participant assets in the defined contribution (DC) plan at retirement is a priority. As DC plans have grown into their role as the primary retirement vehicle for most plan participants, it begs the question: What does that mean for the destination of retiree assets? 

Preference Matters

The omission of a clear point of view on the topic of whether committees prefer to keep retiree assets in the plan or encourage them out of the plan results in decisions that fall short of being informed. When DC plans were supplemental, having a point of view on this topic did not need to be a priority. That is no longer the case. In fact, we posit that declaring a position on this topic has become one of the more critical decisions for committees today. The reason is because it has a direct impact on a series of key committee decisions that, without a point of view, may result in outcomes misaligned with intentions. For perspective, 45.7% of plan sponsors prefer to retain DC plan assets in the plan at retirement.

We encourage committees to spend time on this topic to ensure that their decisions today and into the future are accounting for the post-retirement journey. Below we offer areas that should be considered relative to a committee’s preference of retaining assets in plan at retirement. 

Evaluating the lineup, including consideration of retirement income

Whether or not it is the intent of plan sponsors to encourage participants to remain in the plan at retirement will have an influence on the evaluation process of the Qualified Default Investment Alternative (QDIA), the investment lineup, and by extension, the approach to retirement income services and solutions. If your plan has a mission to maintain retiree assets at retirement, below are important considerations:  

• QDIA (target date or managed accounts): Glide path and asset allocation assessments should account for whether it is the goal to journey into retirement with participants, because it may have an impact on how committee members think about allocation leading up to retirement and moving into retirement (e.g., higher or lower equity allocations at points in time along the glide path). More specifically, it could also inform the way committees look at certain portfolio characteristics such as upside or downside capture in various market cycles, overall volatility or downside deviation of certain vintage years, and even implementation technique (use of active, passive, or a combination of both strategies). 
• Individual lineup options: Those plan sponsors who wish to maintain retiree assets in the plan are likely to consider expanding offerings beyond traditional core asset classes that help participants solve for a range of needs as they transition into retirement. These may include inflation protection options to help protect buying power or the approach to capital preservation offerings such as stable value in search of potentially a higher yielding option, and income-producing strategies (e.g., bond options).  
• Retirement income solutions: Those plan sponsors who have declared a preference to keep assets in plan should also understand that it is imperative to begin to solve for specific retirement income services and solutions. The preference should inform the way committees evaluate the QDIA solution beyond just asset allocation and should include considerations such as the potential use of annuities and/or guarantees as part of the retirement vintage years of target date funds, or annuity offerings on a stand-alone basis (single annuities or an annuity platform). provider partners

Suitably assessing and selecting provider partners

Provider capabilities can vary greatly. As committees consider the role they want to play in the retirement journey of their participants, they will also want to ensure they evaluate and select providers that can meet their expanding needs. Without knowing the direction of a committee’s intent, it will be difficult to assess recordkeepers, custodians, or QDIA providers sufficiently based on need, which may result in unnecessary future disruption.

• Retirement income solutions: If it is the intent of the committee to introduce specific retirement income offerings (QDIAs with guarantees, single annuities, annuity platforms, etc.), it is necessary to have a recordkeeper that is able to accommodate the need or one that is willing to evolve with your needs over time. 
• Recordkeeper rollover tactics: Many recordkeepers have strategies to pursue rolling DC assets over for their advisor platforms. You will want to monitor this closely and understand the strategy of potential provider partners, as well as ensure they understand the plan mission and goals in order to avoid mixed messaging to plan participants or conflicting objectives.

Effectively engaging with participants

A committee’s point of view on keeping assets in plan should inform their participant engagement and communication strategy. 

• DC as a destination account: If a committee wants the DC plan to be a destination for participants transitioning into retirement, the engagement strategy will need to incorporate ways to help your participants understand the value of the DC plan, the benefits of remaining in plan, and the services and solutions accessible to them through the DC plan throughout both their accumulation phase and retirement phase.
• Separation of service: Committees would benefit from clarifying the engagement strategy with those participants that are nearing retirement. Often, one of the first steps for individuals getting close to retirement is to receive communications intended to help them understand how to roll over their assets. If the mission is to work to retain retiree assets, rethinking this step is crucial.

Conclusion

We hope we have helped to make the case about the importance for plan sponsors to establish a preference regarding retiree assets. We fundamentally believe this decision has knock-on effects that, if left unanswered, have the potential to leave both organizations and their participants with less than ideal circumstances. This topic is worth your time and attention, and will lay the foundation for your committee to make informed choices on behalf of your participants and set both your organization and your participants up for success.  

Want to learn more? Reach out today by calling us at (312) 973-4913 or emailing mark.olsen@PlanPILOT.com.

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.