- DC plan programs in the United States totaled $8.9 trillion in assets as of Q3 2022 and represent 22% of total retirement assets in the country.
- Plan sponsors should focus on increasing communication and educational efforts to encourage increased savings rates due to lower investment expectations.
- Reviewing and evaluating the investment menu is crucial to ensure plan participants have access to diversified options.
- Plan sponsors should customize messaging and communication strategies to engage employees of different demographics and knowledge levels.
- Due to the 2022 market downturn, plan sponsors should help participants understand the impact on their retirement plans and provide education on adjusting asset allocation.
- Plan sponsors need to stay informed about legislative and regulatory changes, such as the SECURE 2.0 Act and the DOL’s Final Rule on ESG factors.
- Plan sponsors should reevaluate their retirement plans’ competitiveness within their industry and make changes to meet the needs of their employees.
- Offering support and resources to employees facing financial challenges, such as loans or reduced contributions, can help them get back on track.
Defined contribution (DC) plans, including retirement savings vehicles like 401(k) plans, are the primary way that US workers save for retirement. These plans hold a significant amount of assets, with DC plan programs in the United States totaling $8.9 trillion in assets as of Q3 2022. They represent 22% of total retirement assets in the country. Given their prevalence and importance, plan sponsors have a responsibility to effectively manage these retirement benefits on behalf of their employees.
In 2023, there are seven key areas that DC plan sponsors should focus on to ensure the success of their retirement programs.
1. Saving for Retirement: Lower for Longer Investment Expectations
Given the lower investment performance expectations for the future, retirement savers need to save more to meet their retirement goals. Plan sponsors should prioritize education and communication efforts to inform participants about the changing expectations and encourage increased savings rates.
2. Examining the Investment Menu Review Process
Creating and maintaining a diversified investment menu is crucial for helping plan participants build a robust investment portfolio. Plan sponsors should regularly review and evaluate the investment menu, including target date funds (TDFs), to ensure they remain appropriate for the evolving demographics of plan participants.
3. Driving Employee Engagement through Plan Advocates/Plan Champions
To increase employee engagement with retirement plans, plan sponsors should customize messaging and communication strategies based on employees’ knowledge levels and backgrounds. Empowering “plan advocates” outside of the HR team can also help promote the plan and educate employees about its benefits.
4. Delayed Retirements Due to 2022 Market Downturn
The 2022 market downturn may have led some individuals to delay their retirement plans. Plan sponsors should provide education and resources to help these individuals reevaluate their asset allocation and make any necessary adjustments.
5. Legislative and Regulatory Activity
Plan sponsors need to stay informed about legislative and regulatory changes that impact retirement plans. The SECURE 2.0 Act and the DOL’s Final Rule on environmental, social, and governance (ESG) factors are two significant developments that plan sponsors should understand and incorporate into their retirement programs.
6. Resetting Plan Objectives
Plan sponsors should identify their retirement plan’s objectives and evaluate its competitiveness within their industry. Plan design and employee education are areas where plan sponsors can make improvements to enhance their retirement programs.
7. Supporting Employees Facing Financial Challenges
Some plan participants may face financial challenges due to pandemic-related issues or inflation. Plan sponsors can offer support through increased education sessions and tools, such as re-enrollment and auto-escalation features, to help participants get back on track with their retirement savings.
By focusing on these seven areas, plan sponsors can effectively manage their retirement programs and help their employees achieve positive retirement outcomes.
