DC Plans: Let’s Do the Best We Can With What We’ve Got. As America’s retirement system has evolved from employer-funded defined benefit (DB) plans to mostly employee-funded defined contribution (DC) plans like 401(k)s and 403(b)s, one thing has become abundantly, glaringly obvious: most U.S. workers are on their own when it comes to being financially prepared for our retirement years. That puts plan sponsors in the frankly unenviable position of helping to ensure employees are successful in creating financially self-sufficient retirements. Sometimes — dare we say often? — it can be like pulling teeth to get employees to listen up and save up. But it’s vitally necessary for their futures.
This recent article from Vice took umbrage with the 401(k) in particular. The author, Allie Conti, made some valid points:
- Our current DC retirement plan structure makes a most financially illiterate and challenged population of workers responsible for investing and building a nest egg for their future.
- Retirement plan service and investment fees can be confusing, and potentially higher than they should be.
- For the most part, participants don’t understand the type of advice they’re receiving inside of their retirement plans, and whether their advisor is a fiduciary (and therefore beholden to act in their best interests) or a non-fiduciary (and therefore doesn’t have to disclose things like conflicts of interest – scary!).
Here’s another con: DC plans aren’t as widely available as we perceive them to be. And that’s another thing the naysayers point out — not everyone can save for retirement in an employer-sponsored plan because they don’t have access to one.
According to the Bureau of Labor Statistics, 40% of American workers don’t have access to a DC plan. Again, the DC naysayers chime in, well fine, let’s go back to the DB plan model. Not so fast: A full 72% of workers do not have access to DB plans. So much for the “good old days” of DB. Surprisingly, geography — where an employer is located — plays a role in whether workers have access to a DB or DC plan, or nothing at all, along with participation rates.
But hey, for workers who are fortunate enough to have the ability to save in a DC retirement plan, it’s better than nothing, right? Fair enough, but as Ms. Conti, points out, America’s workers deserve — and should demand — better. However, complaining about it isn’t going to get us there. It’s going to take proactive action. And likely more policy changes at the government level than most of us can possibly control or influence. Nonetheless, plan sponsors have ample opportunity to make a difference, simply by using the tools that are already available. To sum up: If DC plans are what we have, let’s do our best with what we’ve got.
For starters, you know your employee population better than anyone. As such, you have a unique opportunity to tap into their needs and create a retirement benefit that’s structured to meet those needs. How, you ask? Talk to them. Survey them. Get a conversation going. People love to give their opinions, and as we know, everyone’s got one. If it matters — and even if it doesn’t — you’re likely to get some valuable feedback, just by opening up the opportunity for your employees to speak up and be heard.
At that point, it’s up to you to listen and implement the top solutions that make the most sense for your organization, plan, and employees. Do they want lower-fee investments? Okay, great. Get your retirement plan committee, advisor (if your plan has one) and other key decision-makers together and start shopping around for some options. Ask for recommendations. Do some research and due diligence. Benchmark your plan’s existing investments against others out there. Then, if it turns out there’s some room for improvement in your investment menu, figure that out and make the necessary changes.
We’re over-simplifying the process, but it isn’t rocket science, either. Nor does it have to be arduous, scary or overwhelming. There are plenty of resources out there to help you make well-informed decisions that both fulfill your fiduciary obligations and serve your participants’ best interests, including your provider, your plan’s advisor, and organizations like Fiduciary Benchmarks, Brightscope, and of course, our own The Plan Sponsor University (TPSU), where you can gain helpful ideas to improve your retirement plan. You should be monitoring your plan’s investment options anyway, so what better impetus to review and improve them (other than legally you have to) than to help your participants achieve better retirement outcomes?
Investments are just one example of an area where, as a plan sponsor, you have the power to improve your retirement plan. There are a plethora of opportunities to make your plan better — whether it be offering a more generous employer match, providing more participant education, implementing a financial wellness program, or providing the opportunity for participants to obtain more one-on-one advice from a financial professional, for example.
Again, our current retirement system is what it is. There’s a lot of room for improvement — few would dispute that — but for now, it’s the best we’ve got, flawed though it may be. And it’s our job, collectively, to make the most of it to help today’s workers generate enough income to live comfortably their post-career years. Maybe someday we’ll have access to an option that provides everyone with a financially secure retirement without as much effort or confusion, but for now, keep fighting the good fight. There’s a lot we can do to help create solid futures with the system we’ve got.
