Speaking with plan sponsors and defined contribution committees in over 80 cities throughout the U.S. at Plan Sponsor University (TPSU) programs, it is clear that the burden of fiduciary responsibility is causing confusion and stress. As if fiduciary responsibility were not enough, sponsors and investment committee trustees are tasked with turning a defined contribution plan like a 401k into the primary savings plan for retirement. The problem is that a 401k was never designed to be a primary retirement savings plan. A new study by SEI highlights these challenges.
Increasingly, the challenge for plan sponsors and defined contribution committees of helping participants reach their retirement savings goals is being overshadowed by fiduciary responsibilities and the ever-expanding threat of lawsuits. As a fiduciary, plan sponsors carry a heavy burden in the form of personal liability. Considering many sponsors are mid-level management, usually within the Human Resources department, there is little formal training or experience in dealing with complex finance issues.
The results of the SEI survey outline three high-level observations for the current state of governance and oversight of DC plan investments:
-
Fund lineup decisions are being made by retirement committees and the highest representation on committees is coming from human resources.
-
Committees are trying to improve investment options, but with limited resources this is challenging to implement.
-
Outside providers will play an increased and critical role in investment oversight and governance moving forward.
Traditional bundled service providers who once provided a “one-stop-shop” for virtually all of the plan needs are now being seen as potential liabilities due to the need for increased transparency and fee structure, forcing sponsors to decouple asset management from recordkeeping. From a sponsor’s perspective, this adds another layer of oversight and complexity having additional vendors to monitor.
The SEI study suggests that sponsors will demand higher accountability from service-providers, not only to provide increased fee transparency, but also more effective investment line-ups and more sustainable processes.
[button color=”green” size=”medium” link=”https://www.seic.com/docs/Institutions/SEI-DC-Poll-Part3-Governance.pdf” ]Download SEI study here[/button]
