An Effective Retirement Plan Does Not End at Retirement | Capital Group

Defined Contribution Investment Perspectives


An Effective Retirement Plan Does Not End at Retirement

Defined contribution (DC) plans, originally designed as supplemental savings vehicles, typically focus only on the savings phase — not the needs of retirees. Part of the reason for the historic success of the traditional defined benefit (DB) plan is that it is structured to provide participants retirement income directly from the plan.

To truly evolve into a complete retirement plan for American workers, the DC system needs to robustly serve participants in both the spending and saving phases. Sponsors can take the following steps to strengthen their DC plan to support participants in retirement.

  • Evaluate core menu and target date options to address spending phase needs.
  • Work with the recordkeeper to allow for choice in distribution strategies and efficient systematic withdrawals.
  • Update employee communications and education materials to include specifics about the spending phase.

Action Steps for Sponsors to Retain Retirees

Plans of all sizes should consider the following steps to encourage retirees to stay in the plan:

  • Talk to your recordkeeper
    Most plans can facilitate lump-sum and systematic withdrawals, but not all recordkeepers support ad hoc distributions for participants. Working with the recordkeeper to build this into the plan can encourage greater retiree participation.
  • Look at fees
    Examine the expense structure of distribution fees to determine whether they support retirees’ needs.
  • Design withdrawal programs into the plan document
    Many plan documents are already broad enough to allow partial distributions and enhanced payout options, but some may have to be amended.
  • Include retiree retention in participant communications
    Ensure that all participants understand that they are allowed to stay in the plan after retirement. You may also wish to provide education on how to manage assets during retirement.
  • Target pre-retirees for educational outreach
    Pre-retirement education can help participants understand the advantages of staying in the plan, the optimal withdrawal rate, and the importance of consolidating retirement assets.


Viewing DC plans as the retirement program of the future, the government enacted the Pension Protection Act of 2006 (PPA) to give plan sponsors the tools to improve participant outcomes. The effective use of auto-enrollment, auto-escalation and a QDIA can dramatically improve the likelihood of participants amassing enough assets to generate sufficient retirement income.

To become a complete retirement program, however, a DC plan must serve the needs of retirees as well as workers. The following steps to address the spending stage may help sponsors improve participants’ financial security in retirement:

  • Ensure the investment menu can meet retiree payout needs.
  • Consult with your recordkeeper to facilitate ad hoc and systematic withdrawals and, if necessary, amend your plan document.
  • Deliver participant communications that reflect the pros and cons of staying in the plan.


* Plan Sponsor Council of America’s 59th Annual Survey of Profit Sharing and 401(k) Plans, 2016.

Not all plans can accommodate retirement income options.


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Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation. 

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