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PSNC 2017: The Top Trends Impacting DC Plans and Participants

Is the concept of a retirement income solution too small? Industry experts share thoughts on this and other evolvings in retirement plan saving strategies.

By Judy Faust Hartnett | June 08, 2017
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Speaking at the 2017 PLANSPONSOR National Conference in Washington, D.C., two industry experts weighed in on top trends affecting retirement plan administration. Daniel Bruns, head of large defined contribution (DC) plan strategy and solutions for Morningstar Investment Management Inc., and Drew Carrington, head of institutional defined contribution – U.S. at Franklin Templeton Institutional LLC, discussed topics ranging from a new take on retirement income solutions, to the sizable impact that data analysis is having on plan customization—and the rest of those below—all reflecting current industry trends. The executives’ insights derive from their work with retirement plans and the sponsors who run them.

Rethinking Retirement Income: The Inherent Appeal of a Distinct Retirement Income Tier. When discussing the role of retirement income in today’s plans, Carrington said, “I want to step back from retirement income having a single solution. The problem is, that’s a unicorn that just does not exist.”

Instead, Carrington noted, the concept of retirement income is broader than a single investment option. “It’s a tool kit made available to participants that includes friendly plan design, targeted communication about over-age-50 catch-up contributions and a Social Security optimizer, to name just a few.”

Making Income the Outcome – Trends in Developing Retirement Income Solutions. Bruns noted an acceleration in developing income solutions over the past year. “As an industry, we’ve given participants the chance to create great assets. Now they need help on the second half—how to invest these assets and how to take distributions.”

He pointed to three distribution solutions: a “through,” or a “to,” target-date fund (TDF); a managed payout fund, which has a set distribution schedule of usually 4% and can be expensive; or a managed account, which also can be expensive.

The Oversimplification of Overchoice: The Call for Curation—Rather than Elimination—of Choice. Industry experts have spoken for a long time about behaviors and participant decisionmaking, but where is the role of choice in retirement plans today? According to Carrington, “Automation has been great for the most vulnerable population—the young. But overall, the defined contribution (DC) industry tends to equate changes with expertise.

“We think participants don’t have the expertise to make their own choices, but maybe we’ve taken it too far,” he said. “Participants have preferences. As they become more engaged with their plan—when they are older and their assets have become more significant—limiting their choices can become problematic; they may want more differentiated options.”

Core Menu Design in the Age of Default Investing. Bruns had a different view than many in the industry regarding how many funds should comprise a retirement plan lineup. He concurred with Carrington that core menus need to be expanded. “There has been a lot of movement on this trend,” he observed.

“Let’s re-examine the average person. He is defaulted into an asset allocation that he stays in until he leaves. [Average people] represent 80% of the participant population. But the other 20% want to do it themselves. They’ve been with the plan longer; they have more assets and are savvy investors. Diversification is important and is the only free lunch in the industry.”

NEXT: Working beyond prepackaged TDFs