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.