Kweku Obed, CFA, CAIA
The percentage of U.S. workers that are covered by a traditional defined benefit (DB) pension has declined in recent decades while over the same period, defined contribution (DC) plans have become the most commonly used employer-sponsored retirement savings vehicle in the U.S.
As a growing percentage of the U.S. labor force will rely on DC plans as a key source of retirement income, we expect to see the continued evolution of best practices around the design, monitoring, and accessibility of defined contribution plans, including increased direction from regulatory organizations such as the Department of Labor (DOL).
In this paper we will highlight some key themes, namely that along with the growth of DC plans, the Pension Protection Act of 2006 (“PPA”) has been a catalyst for changes to plan design and investment structure. Additionally, the mainstream acceptance of behavioral finance has placed greater emphasis on simplifying the investment lineup and helping DC participants make more effective choices.
While these three factors have driven much needed change in the DC world, plan sponsors and consultants must continue to build on the solid foundation and tailwinds that the growing popularity of DC plans, PPA, and behavioral finance have helped create. In building on this strong foundation, DC plan sponsors should adopt a robust governance and monitoring framework in which the depth and quality of the investment lineup is equally important as the maximization of participant engagement, plan design, and oversight of all vendors responsible for providing third-party services to DC plans.
A pitfall for a majority of plan participants surrounding retirement planning is a lack of familiarity with…
Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.
We respect your privacy. We will never share or sell your information.
If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.Contact Us >