When it comes to constructing the perfect defined contribution (DC) plan, sponsors and participants both might benefit by taking a page from the Rolling Stones’ famous line: “You can’t always get what you want, but…you get what you need.”For nearly a decade we have been surveying plan participants and sponsors, and the latest data from our study indicates that employers and employees need two things: better structured DC plans and greater retirement confidence.
How can we give them what they need? By listening to what they want.
More than three-fourths (77%) of plan sponsors are keenly interested in increasing plan participation, according to our research. And most participants (67%) said the single most important feature they want from their DC plan is a steady income stream in retirement.
How do we get there?
The first road is through automation.
The data is pretty clear. DC plans that have automatic enrollment have higher participation and savings rates (read here for one of many such studies). So plans should make workers “opt out” if they don’t wish to participate and invest in the default. Plans should also offer automatic escalation, with contributions automatically increasing each year.
Plan sponsors(employers) need to convert their 401(k) plan into more of a pension fund like plan. Remember the original 401(k) plan was intendned to supplement a pension plan. It has become the sole source of retirement for most Americans.
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