Six Tips to Take DC Plans to the Next Level

Tax reform. Interest-rate hikes. Regulatory questions. Inflation. There’s always a reason to put off making changes to your company’s defined contribution (DC) plan. But some improvements will be good for your plan and participants no matter what happens.

Defining Your Company’s Future

It’s gotten much tougher over the past few years to hire and retain top talent, due to a tight labor market and unemployment at its lowest since 2001. Offering a defined contribution (DC) plan is pretty much “cost of entry”—and so is a well-rounded approach to retirement readiness. Despite the explosion of experimental work/life perks offered by companies today, an appealing DC plan is still one of the top incentives for most workers.

With all the discussions and debate going on in Washington, DC, plan sponsors might think they should wait before making any changes to their plans. But our recent survey of plan sponsors reveals several ways to improve DC plans right now—regardless of what happens inside the Beltway.

Here are six tips to help DC plan sponsors enhance their firms’ retirement-readiness offerings.

1. Offer a Good Default Option

With each passing year, more DC plans are using target-date funds as their qualified default investment alternative (QDIA). Today, a wide array of target-date funds may be more appropriate than the first generation of prepackaged, proprietary mutual-fund vehicles that typically came with a provider’s recordkeeping services. Target-date funds now offer such benefits as open architecture, cost-saving collective investment trusts, customized glide paths and in-plan guaranteed-lifetime-income solutions.

2. Make the Plan Automatic

Setting up automatic enrollment and automatic escalation helps workers save for retirement, and can also boost a DC plan’s success metrics. Higher participation rates are part of that success, as is higher overall plan savings.

3. Give Employees a Financial Wellness Program

Companies offer these formalized, needs-driven programs to employees as added resources, separate from a 401(k) education program. The most common services are investment planning, targeted education programs and seminars. Company leaders cite several important benefits of these programs: employees are more engaged, have a better perception of the organization, are more productive and focused, and feel less stress.