One
issue with TDFs unfolded after the Pension Protection Act (PPA), which allowed
employers to automatically enroll new hires, and also to automatically default
participants who did not select investments into a TDF. This left many older
employees not invested in a TDF, creating a higher risk. The solution,
BlackRock said, is to hold periodic re-enrollments where all employees have the
chance to be enrolled in a TDF. Re-enrolling can also allow fiduciaries to take
advantage of the QDIA safe harbor. According to BlackRock, studies show that
most participants make no or few adjustments to their accounts; tenured
employees do not benefit from new defaults; and re-enrollment is an easy way to
improve outcomes.
The
issue of “tomorrow,” or retirement income, involves questions such as how does
a participant generate income, should they buy an annuity and how long will
they live? There is great confusion about how retirement income options work
within DC plans, but there is evidence that participants want them, BlackRock
said. In its DC survey, 86% of participants favored an income solution in their
retirement plan, and 85% found a fund with a guaranteed income feature
appealing. To address this, in-plan income options must be explored and
sustainable income sources in a low-yield environment must be found.
Ultimately,
the risk lies in not taking action, BlackRock said, because no action leads to
an uninformed work force.
Kristen Heinzinger