5 Questions DC Plan Sponsors Should Ask

August 25, 2017

Are you confident that you have the best plan and investment options to meet participant needs? Ask yourself these 5 important questions.

5 Questions DC Plan Sponsors Should Ask

1Do you offer more than 15 core fund options in your menu?

That might be too many.

Most plan sponsors offer participants between 16-36 funds, hoping theyll appreciate the opportunity to build a well-diversified portfolio.1 But this can have the reverse effect, overwhelming plan participants who:

  • Often lack the investment knowledge to create an adequately diversified portfolio
  • Typically choose only two or three options from the entire menu
Fact

Industry research provides evidence of a decline in participation rates as the number of funds offered increases.2

Tip

With increasing marketplace complexity, plan sponsors should make it easier for participants to invest in their retirement plan. There are a number of techniques now available to help plan sponsors offer a simpler lineup.

Simple is good!

Most plan sponsors offer participants between 16-36 funds1, which can be overwhelming to some people. In fact, industry research provides evidence of a decline in participation rates as the number of funds offered increases.2

Participants often lack the investment knowledge to create an adequately diversified portfolio, and when they do invest, participants typically choose only two or three options from the entire menu.3

Tip

Plan sponsors who make it easier for participants to invest in their retirement plan add real value. A number of techniques are now available to help plan sponsors offer a simpler lineup.

2Are any of your investment options from your recordkeeper?

There’s more out there!

Choosing investments from your recordkeeper can be convenient, but it’s not the only choice – and it might not be the best choice. In fact, the Department of Labor (DOL) has suggested that plan sponsors should evaluate independent investment managers who are not also your recordkeeper.4

Tip

Plan fiduciaries should evaluate investments options through an objective process, according to the DOL. Youre also required to periodically review the plan’s investment options to ensure that they should continue to be offered.

You’ve really considered a lot of options!

While choosing investments from your recordkeeper can be convenient, it’s not the only choice – and it might not be the best choice. In fact, the Department of Labor (DOL) has suggested that plan sponsors evaluate independent investment managers who are not also your recordkeeper.4

Tip

Plan fiduciaries should evaluate investments options through an objective process, according to the DOL. You’re also required to periodically review the plan’s investment options to ensure that they should continue to be offered.

3How sure are you that your participants will be prepared to retire?

You’re not alone.

Despite encouraging participants to save more, 73% of our population will struggle financially during retirement.5 Preparing for retirement requires genuine care and a customized strategy that considers the right knowledge of each participant over time. It’s important to explore and evaluate the appropriate strategy that will put your participants in the best position to enjoy robust financial health in retirement.

Tip

When it comes to retirement readiness, financial planning tools like modeling technology can help evaluate the readiness of your participant population. Looking at behavior and offering options that help participants get on track and stay on track can help them to be better prepared.

Congratulations, you’re in select company!

Despite encouraging participants to save more, 73% of our population will struggle financially during retirement.5 Preparing for retirement requires genuine care and a customized strategy that considers the right knowledge of each participant over time.

Tip

Plan sponsors should be continuously looking at behavior and offering options to help keep participants on track. When it comes to retirement readiness, financial planning tools like modeling technology can help evaluate the readiness of your participant population.

4Has it been 3 or more years since you’ve re-evaluated your investment menu?

Three years is a long time.

A lot has changed in DC plan management during that time. From new products and asset classes to new ways to blend active and passive implementation, you want to make sure that you’re offering the best investment options for your plan participants to achieve retirement success.

Fact

The Department of Labor (DOL) states that employers are required to monitor the manager periodically to assure it is handling the plans’ investments prudently and in accordance with the appointment.6 This also applies to target date funds; the DOL issued general guidance that plan fiduciaries are responsible for periodically reviewing these funds, just as they are for all other investment options in their DC plans.

Tip

Offering the best possible investment menu with top-tier managers is key, along with adequate monitoring of the managers’ performance.

You’re on top of things!

You are clearly already aware of the importance of offering the best possible investment menu with top-tier managers.

Fact

The Department of Labor (DOL) states that employers are required to monitor the manager periodically to assure it is handling the plans’ investments prudently and in accordance with the appointment.6 This also applies to target date funds; the DOL issued general guidance that plan fiduciaries are responsible for periodically reviewing these funds, just as they are for all other investment options in their DC plans.

Tip

From new products and asset classes to new ways to blend active and passive implementation, you want to continually make sure you’re offering the best investment options for your plan participants to achieve retirement success.

5Has it been 2 or more years since you last performed a fee benchmarking study?

This may be costing you.

It’s important to know how your fees stack up. Most litigation in the DC space is around fees. The Employee Retirement Income Security Act (ERISA) requires that those responsible for managing retirement plans ensure that the services provided to their plan are necessary and that the cost of those services is reasonable.6

Tip

To ensure that your fees are in line with ERISAs requirements, take advantage of available resources to make sure your plan is in the appropriate range.

Way to protect yourself!

Most litigation in the DC space is around fees. The Employee Retirement Income Security Act (ERISA) requires that those responsible for managing retirement plans ensure that the services provided to their plan are necessary and that the cost of those services is reasonable.6

Tip

You always want to ensure that your fees are in line with ERISAs requirements, so be sure to take advantage of available resources to make sure your plan is in the appropriate range.

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1SEI DC Poll, “Part 2: Defined Contribution Trends,” June 2014.

2Mitchell and Utkus, “Pension Design and Structure: New Lessons from Behavioral Finance,” Oxford Press, 2004

3Vanguard, “How America Saves 2015: A report on Vanguard 2014 defined contribution plan data,” PDF, 2015

4United States Department of Labor, “Meeting Your Fiduciary Responsibilities,” February 2012

5Smart Business, “Are you and your employees ready for retirement?” February 2014

6United States Department of Labor, “Report of the Working Group on Optional Professional Management In Defined Contribution Plans,” November 7, 2003

What to Know Before Making Any Change to Your DC Plan

Make your next DC plan change your last. When reviewing your DC plan, help ensure your participants are better prepared for retirement.

Know the 5 Ws

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Legal Note

Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.