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Retirement Planning > Retirement Investing

Where DC plan sponsors fall short

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A growing number of employers with 401(k) plans are trying to do more to help their workers save for retirement, but often fall short in how they select and evaluate target-date funds, according to preliminary results from Towers Watson’s 2014 Defined Contribution survey. 

“The vast majority of plan sponsors selecting TDF offerings focus on investment metrics and not bigger-picture measurements such as retirement success rates or income replacement ratios,” Towers Watson said in a summary of its survey. “Investment metrics are important; however, metrics that reflect retirement outcomes represent a more holistic view and should drive evaluation, selection and monitoring of TDFs.” 

The good news, on the other hand, is that more sponsors are embracing more complex strategies in order to meet the retirement needs of their participants, according to the study.   

DC plan structures have historically been built with many single, stand-alone active mutual funds, notes the survey. While the majority of the 457 employers surveyed (60 percent) report their continued allegiance to that approach, the Towers Watson survey found more sponsors are recognizing that it’s a path doesn’t deliver the best returns. 

Instead, employers are looking at multi-manager, “white-label” options that promote fewer and simpler diversified options. 

Along these lines, customized TDFs, which allow sponsors some say in the design of the products they offer their participants, have either been implemented or are being considered by 49 percent of the sponsors surveyed. 

“A custom TDF series provides the greatest opportunity for plan sponsors to offer a solution best suited to their participants’ needs, and the ability to manage around risks and outcomes specific to their plans objectives,” write the study’s authors. 

That said, the study noted sponsors are failing to take a holistic approach to how they select their TDFs. 


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