DC plan participants now have more responsibility over their retirement, but not all are experienced or equipped to increase savings. In an interview with PlanSponsor, Mike Swann, Client Portfolio Manager, says the fact that each participant is responsible for their own outcome is one thing that is not working in the DC retirement plan system. Participants may not be familiar with how to set up portfolios to withstand market losses or how to react to market losses, and they are subject to their own whims — taking hardship withdrawals or loans and reducing or stopping contributions when they need cash.
With the current crisis of COVID-19, it’s been revealed that many participants focus more on investment performance instead of replacing monthly income, which is how a pension plan would normally operate.
Swann believes the next focus of DC plan design will involve helping participants evaluate downside risk as participants move closer to retirement. The Setting Every Community Up for Retirement Enhancement (SECURE) Act will allow plan sponsors to explore more guaranteed income products. Although costs themselves are a challenge for getting said products into DC plans, Swann believes providers will find a way to make the products work for them in a cost-effective manner.
“The evolution of DC plan design will be driven by market demand,” he says. “The ‘give as much risk as participants can take to get market performance’ argument is going to change."Read the full article
Information provided by SEI Investments Management Corporation, a registered investment advisor and wholly owned subsidiary of SEI Investments Company.
There are risks involved with investing, including loss of principal. There can be no assurance goals will be met nor that risk can be managed successfully.
A 401(k) QDIA (Qualified Default Investment Alternative) is a default investment used when money is contributed to an employee's 401(k) account, but the employee has not made their investment election. Sequence risk is the danger that the timing of withdrawals from a retirement account will have a negative impact on the overall rate of return available. One basis point = 1/100 of 1%.