Mercer, the global consulting firm, advises corporate sponsors of 401(k)s and other defined contribution plans to focus on more than just retirement in 2017.
“Change is the only constant in today’s market,” says Mercer partner Liana Magner in a statement. “DC plans need to evolve with changes in legislation, regulations, industry trends and changing needs of individuals. What may have been ideal a few years ago many not be as ideal today.”
With that in mind, Mercer has published a report “Top Priorities for DC Plan Sponsors Moving into 2017” that includes but goes beyond the impact of the Department of Labor fiduciary rule, which could potentially change or be repealed under President-elect Donald Trump.
–Focus on more than just retirement. Asset allocation, auto-enrollment and other features related to retirement are no longer good enough, according to Mercer.
“Companies also need to acknowledge other financial needs of employees and offer guidance and goals for employees to most effectively manage their broader financial situation.”
–Consider including assistance with student loan repayments. Forty million Americans currently owe $1.3 trillion in student loan debt, and many are struggling to repay those loans, notes Mercer. For many, repaying student loans is more important than saving for retirement, but that could cause employees to miss out on an employer’s matching contributions to their 401(k) plan.
Mercer notes that although there could be complications integrating employee student loan repayments within a 401(k) plan design, it can be done, and it could make plans more attractive to employees.
–Study the design of your matching program. Mercer recommends that plan sponsors study the behavior of plan participants to assess if their plan’s design influences employees choices for the better.
For example, does matching 4% of participants’ contributions suggest that 4% is enough to save for retirement?
Plan sponsors should consider how a plan’s design can “be more effectively structured to influence the preferred behavior” of participants.
Review managed account programs. Plan sponsors should review when it last reviewed their managed account provider and whether, after reviewing the program, that provider remains the sponsor’s first choice.
In light of the new DOL fiduciary rule, “plan sponsors should fully understand exactly what fiduciary role the managed account provider will be accepting,” writes Mercer.
Plan sponsors need to understand potential conflicts of interest and the type of advice the managed account provider will dispense, especially related to distributions.
–Reconsider target date funds. The DOL has issued guidance highlighting how defined contribution plan sponsors need to ensure that target date funds remain appropriate for plan participants, according to Mercer.
With that in mind, plan sponsors should determine if the TDFs in their plan align with employees’ ages and likely retirement dates and the quality of the offering. “A lot has changed in the past five years. What may have been ‘best in class’ may not be so today,” writes Mercer.