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Plan your sponsor priorities for 2024: A 7-point checklist – investxyon
Friday, April 19, 2024
Home Investment News Plan your sponsor priorities for 2024: A 7-point checklist

Plan your sponsor priorities for 2024: A 7-point checklist

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Defined contribution (DC) plans are one of the most common ways American workers save for retirement. Total assets in U.S. DC plan programs reached $9.6 trillion as of Q3 2023, representing 22% of all U.S. retirement assets.. This creates significant responsibility for plan sponsors who provide and manage retirement benefits on behalf of their employees.

To help sponsors plan, we’ve hand-picked seven topics that we think sponsors should prioritize in their 2024 retirement programs.

1. Complete a comprehensive target date fund (TDF) review

Target date funds (TDFs) are a feature of DC plans. Offered by 85% of plan sponsors. These funds automatically rebalance to become more conservative as participants approach retirement. For this reason, TDF is appealing to both plan participants who seek a manual approach to managing their retirement savings and plan sponsors who use such funds as qualified default investment alternatives (QDIAs) in their plans. I am.

In fact, one of them 80% of plans use QDIA and 86% of plans use TDF. As a result, a plan participant often invests his entire account balance in his TDF. This makes a strong selection process and diligent and continuous monitoring essential.

U.S. Department of Labor (DOL) guidance “Target Date Retirement Funding — Tips for ERISA Plan Fiduciaries.” Outline best practices for TDF selection. Plan sponsors should review the complete guidance before evaluating TDF. We have independently read this guidance and identified his three key questions that plan sponsors should ask themselves. Combined, these serve as a litmus test to determine whether a TDF review is warranted sooner rather than later.

  1. Did you consider your company’s specific employee demographics in your initial analysis of investment options?
  2. Did the initial analysis include evaluation of multiple TDFs?
  3. Have you reviewed your TDF selection beyond normal performance monitoring in the last three years?

If the answer to any of these questions is “no,” plan sponsors may consider prioritizing a 2024 TDF review.

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2. Trends vs. What’s Useful and Necessary

Articles, conference sessions, and webinars heralding new ideas to make DC planning “better” can be distracting and often blur the line between marketing and thought leadership.

As an example, historically, most retirement planning communications have emphasized accumulation. Over the past two years, they have expanded their “decumulation” strategy to focus on retirement. This has led to a wave of sponsored content promoting in-plan pensions or “lifetime income products”. Although such products should be popular, Only 9.9% actually offer plans to plan participants.

The industry is in the midst of a rapid innovation cycle driven by the 2022 Setting All Communities to Increase Retirement Benefits (SECURE) 2.0 Act, increased competition among service and product providers, and other long-term trends It’s inside. These are exciting times and much of what is being developed now may be of use to plan participants in the future. However, plan sponsors must maintain their discipline and adopt an overall goals-based approach when evaluating trending DC plan products, features, and solutions.

3. Provide employees with comprehensive financial education resources

To recruit and retain top talent, plan sponsors must customize their financial education strategies to meet the needs of a diverse and evolving workforce. Different generations of employees approach educational content differently. Some people prefer in-person meetings, videos and articles, or one-on-one sessions. What resonates with someone early in their career may not apply to someone nearing retirement. As a result, plan sponsors must target, differentiate, and change their education methods to engage all employees.

A well-managed retirement plan, complemented by comprehensive financial education resources, can be an important recruitment and retention tool. Our clients have the greatest success when our employee education consultants work with our retirement planning advisors to build annual education campaigns that incorporate the diverse needs of their employees. A little planning can go a long way in improving participation, engagement, deferral rates, and other important metrics.

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4. Focus on total financial wellness

Inflation and the looming threat of recession were top of mind for many Americans last year. Three statistics from a recent PNC survey of companies and their employees highlight this.:

  1. Seven in 10 employees reported feeling financial pressure that was negatively impacting their work.
  2. Three out of four employers report that financial stress among employees has affected their work, leading to lower productivity, lower morale, and lower performance.
  3. Almost one in four (23%) survey participants have consulted with a financial advisor in the past three years.

Plan sponsors can support the financial well-being of their employees by making retirement plans more than just a savings vehicle. By subtly emphasizing financial health, you can not only improve the financial health of your employees, but also boost productivity and talent retention. Providing access to group education sessions during work hours, encouraging the use of calculators and other online record-keeping tools, and facilitating individual consultations with financial educators are all helpful measures.

5. Evaluate the record taker

The records keeper industry is rapidly consolidating while struggling to adapt to a highly active regulatory environment. While some record holders are rising to the challenge, others are lagging behind. As part of her fiduciary duties, a plan sponsor must regularly evaluate providers on two key dimensions:

  1. services and products. Plan sponsors analyze the services provided to determine if improvements are needed. For Record Keeper Participant Websites and other products, Plan Sponsor may survey participants or personally test the experience. At least annually, these findings should be documented as part of the review meeting and saved in the trustee file for future reference.
  2. Fee. A good rate evaluation process compares what a plan charges to other plans with similar size assets and participants providing similar services to a similar number of people. We use an independent rate benchmarking service to provide this information to our clients for them to store in their fiduciary files.

If the record-keeping relationship does not meet the standards, plan sponsors should consider whether another provider may be a better fit.

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6. Protect cybersecurity

As the number and sophistication of cyber-attacks increases, organizations are educating themselves on how best to protect themselves from fraudulent activity. last year, 88.2% of DC plans have started cybersecurity measures. Plan sponsors and participants should stay informed about the DOL’s cybersecurity guidance.For plan sponsors, the DOL “Cybersecurity Program Best Practices” can serve as a starting point.

DOL guidance highlights planning data as a central concern. We encourage plan sponsors to evaluate their own internal best practices as well as those of their recordkeepers and other plan vendors.

Plan sponsors should consider asking providers annually for information about their cybersecurity practices. Verifying, documenting, and storing that data in a trusted file is an easy best practice to implement. Plan sponsors may go a step further and collaborate with record keepers to deliver participant-focused communications to improve digital hygiene. In our experience, there are additional benefits to calling for improved cybersecurity practices. Encourage plan participants to log into their accounts and engage in retirement planning.

7. Refocus on governance and compliance

The SECURE 2.0 Act of 2022 was covered in detail in 2023 and received significant attention and attention throughout the year, sometimes at the expense of other projects and best practices. Plan sponsors may have put off assessing their recordkeeping status, conducting TDF reviews, and analyzing plan designs compared to competitors, among other projects.

The good news is it’s easy to get back on track. The plan sponsor must set goals, set deadlines, and ensure that steps are taken to achieve those goals. We encourage plan sponsors to work with their advisors to create her 2024 checklist and get to work checking the boxes as soon as possible.

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Plan sponsors play a critical role in managing retirement programs in a way that creates positive retirement outcomes for plan participants.

By keeping these seven priorities in mind, plan sponsors can focus on the areas where they have the greatest potential for impact.

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All posts are the opinions of the authors. As such, they should not be construed as investment advice, and the opinions expressed do not necessarily reflect the views of CFA Institute or the author’s employer..

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