DC Plans Important to Retirement Security

Defined contribution (DC) plans are a critical part of the U.S. retirement system, says a research report.

“Building Retirement Security Through Defined Contribution Plans,” authored by Professors Jeffrey R. Brown and Scott J. Weisbenner from the University of Illinois at Urbana at Champaign, was written in cooperation with the American Council of Life Insurers. The report indicates that positive strides have been taken by DC plan sponsors in recent years, especially in the areas of increasing participation, providing more diversified portfolios and providing immediate eligibility to employees that are more likely to switch employers at various times throughout their career.

As the DC system has grown, say the authors of the report, it has evolved to better meet the needs of employers and participants. “Median employer plus employee contribution rates are now approximately 10% of income,” they say. “Additionally, the widespread use of life cycle and target-date funds as default investment options, as well as the decline in allocations to employer stock, has greatly improved the asset allocation of typical participants. As a result of these and other improvements, today’s defined contribution system is preparing millions of participants for a secure retirement.”

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The report addresses critics of the DC system who claim that defined benefit (DB) plans are a better retirement vehicle. “The good old days of the DB plan were not actually so good,” say the report’s authors, pointing out that prior to the protections offered by the Employee Retirement Income Security Act (ERISA), employee retirement benefits were “exposed to substantial funding risk and short-tenure workers often received no benefits at all.”

In addition, the report finds as a result of ERISA protections, many employers have found that providing a DB plan no longer passes “the cost-benefit test in light of a changing economic environment.”

As for improvements to the DC system, the authors recommend, “Policymakers and the employer community should work together to continue to build on the substantial progress already made regarding coverage, participation and contributions, as well as in the promotion of guaranteed retirement income and other retirement risk management practices.”

Other recommendations include improving incentives for employers to offer plans and making part-time and recently hired workers eligible to participate, as well as increasing employee contribution rates through automatic enrollment and automatic escalation plan features.

In terms of changes on a broader level, the report suggests that the aim of DC plans be refocused from simply accumulating wealth to “treating DC plans as a path to guaranteed retirement income.”

The full text of the report can be downloaded here.

Structural Shakeup at Ascensus

Retirement plan services provider Ascensus created a new organizational structure to support the firm’s growth expectations in the retirement and college savings space.

The new structure segments the business into two divisions—retirement services and college savings—and implements a realignment of the company’s leadership team. Bob Guillocheau, president and CEO of Ascensus Inc., says the move comes after the company’s successful push into new markets, including online 401(k)s, defined benefit plans, cash balance plans and 529 college savings.

Within the new framework, Shannon Kelly has been appointed president of Ascensus retirement services and Jeff Howkins will serve as president of Ascensus college savings. Both will oversee day-to-day operations of their respective business segments and will report to Guillocheau.

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Prior to her role as president, Kelly worked as executive vice president of client operations and was selected to oversee ExpertPlan in early 2013, after Ascensus acquired the company. Kelly also has extensive experience with business analysis and information technology, the firm says, in addition to overall service and operations expertise.

Howkins remains president of Upromise Investments Inc., a 529 college savings plan provider previously acquired by Ascensus. He joined Upromise Investments in 2004.

As part of the leadership team’s restructuring, Neil Smith, executive vice president of strategic business support services, will continue overseeing strategy, mergers and acquisitions, product development, marketing and training functions. Smith also takes on additional sales responsibilities under the new arrangement. In this role, he will focus on the growth of Ascensus and continue to report to Guillocheau.

More information is available at www.ascensus.com.

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