1. Define success 1. Define success

A successful DC plan hinges on four factors: increasing participation, increasing the savings amount, investing appropriately and spending wisely. Employers can optimize their plans through skillful, intentional intervention based on the plan’s demographics and employee behavior. Costs should be minimized where appropriate to increase the “value” of each factor.

2. Recalibrate your default option 2. Recalibrate your default option

Reevaluate the level of auto-enrollment, auto-escalation, and re-enrollment in driving participant behavior, with the goal of accumulating sufficient retirement assets. The default investment option should provide a professionally managed, well-diversified, single option solution for participants who cannot or do not want to make asset allocation and rebalancing decisions on their own. Review the appropriateness of your default option for your unique participant population.

3. White label your investment choices 3. White label your investment choices

Many participants build their portfolio based on an investment option’s name recognition (manager selection) rather than focusing on asset allocation. Consider “white labeling” your investment options - unbranded and custom - designed for the plan. A custom approach allows you to offer fewer investment options by building a well diversified portfolio that otherwise may be difficult to offer on a standalone basis. You also have the flexibility to add or replace managers without the communication and administrative headaches with a branded option.

4. Communications: Maximize your impact 4. Communications: Maximize your impact

Many plan sponsors offer a tiered investment structure to help participants make better investment allocation decisions. Make sure the investment options are communicated by tier in the participant education/enrollment materials and on the plan’s website/on-line tools. Assess the best delivery system, and sock it to 'em.

5. Anticipate the impact of adding income projections 5. Anticipate the impact of adding income projections

Participants can’t relate to large lump-sum amounts in the distant future. Tell them how much monthly income, in today’s dollars, they can expect in retirement given their current balance, contribution rate and years to expected retirement. Educate on how actions they take now may impact that outcome.

6. Develop spend-down strategies for happy retirees 6. Develop spend-down strategies for happy retirees

Handing retirees a lump sum check and wishing them “good luck” doesn’t cut it. While we’d all like more developed retirement income tools and additional regulatory guidance, we can’t put our near-retirement employees on hold indefinitely. It’s time to start crafting real solutions for the spend-down challenge.

7. Complete a compliance audit -- the IRS is watching 7. Complete a compliance audit -- the IRS is watching

With so much governance focus on fees, many plans have gone for years without a compliance audit. With both the IRS and the Labor Department increasing their focus on compliance, now is a good time to remedy that. Best practice includes checking all documentation and communications, as well as administration and transactions.

8. Know the limits of your recordkeeper's role 8. Know the limits of your recordkeeper's role

While it may be convenient to let your vendor “take charge” of your plan, never forget that when the DOL, IRS or plan litigator comes knocking, it will be at your door, not your recordkeeper’s. You need to take control of your plan and ensure that decisions are made from an unbiased point of view.

9. Focus on fees 9. Focus on fees

New fee disclosure regulations - 408(b)(2) and 404(a) - have led to increased scrutiny of all plan fees. Review and benchmark investment and recordkeeping fees separately, rationalize the fee allocation methodology and document your review process to support a strong governance framework and help defend against excess-fee litigation. Evaluate moving from mutual funds to collective trusts and/or separately managed accounts in order to reduce investment fees.

10. Assess your advisory relationship -- it's not all or nothing 10. Assess your advisory relationship -- it's not all or nothing

Appointing an adviser to provide discretionary delegated solutions for a plan in its entirety, or for select investment options within a plan, transfers more fiduciary responsibility to the adviser and may result in time savings for management as well as the potential for increased diversification, improved performance and decreased costs. Determining which governance structure is right for you is a critical component of the DC plan management process.


10 steps DC plan sponsors should take in 2013

With defined contribution plans continuing to assume greater importance in employees’ achieving retirement security, global consulting firm Mercer believes that 2013 is shaping up as a year when many sponsors will take a fresh look at their plans’ objectives, investment options and communications with participants.
“It’s no longer a situation where DC plan sponsors can simply ‘set it and forget it’”, says Amy Reynolds, a partner in Mercer’s retirement business and U.S. defined contribution leader. “The trend is for plan sponsors to regularly evaluate whether their DC plans are successful for both the organization and its employees. As a result, plan sponsors are more active in reviewing plan objectives, more prescriptive when it comes to investment options and more invested in communicating with employees who want to understand how to achieve their own retirement income goals.”
Here are 10 steps Mercer recommends for this year:

1. Define success

A successful DC plan hinges on four factors: increasing participation, increasing the savings amount, investing appropriately and spending wisely. Employers can optimize their plans through skillful, intentional intervention based on the plan’s demographics and employee behavior. Costs should be minimized where appropriate to increase the “value” of each factor.





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