WASHINGTON — Defined contribution retirement plans have gained popularity over the years, but they’ve also encountered some “bumps along the way” that the industry needs to address, a money management executive said here.
The growth in DC plans resulted from many factors, such as ease of use, payroll deduction, flexibility, portability, and transparency, said Cynthia Egan, president of T. Rowe Price Retirement Plan Services, Inc., Baltimore, in a speech at a retirement conference organized by LIMRA, LOMA and Society of Actuaries.
The simplicity of the plans was a big factor, Egan said. “Participants can understand what they own,” she said.
But participation rates have been dropping in recent times, and “inertia prevails,” she said. Employees “lack confidence (in investing in the plans) and need help.”
Another problem is that the once-simple plans have become subject to “over-engineering,” Egan said. Some providers have added so many bells, whistles and choices that “this may have led to confusion and paralysis” she added.
Compounding matters is that many plan participants are not financially literate, she said. “Most folks don’t have a clue on how to translate a pot of money into a retirement income stream to meet spending needs,” she said.