Defined Contribution Investment Perspectives
A utility company with $1.2 billion and 7,500 participants in its retirement plan wanted to improve the investment selections of its participants. It introduced a new set of custom TDFs in order to help participants achieve a more “defined-benefit-like” experience within the defined contribution plan, according to the consultant for the large global consulting firm that guided the company through its re-enrollment.
The plan implemented the re-enrollment to coincide with a change in recordkeepers. “Doing a re-enrollment in conjunction with other plan changes made it more seamless for the participants, although it required additional effort from the plan sponsor and recordkeeper,” explains the consultant.
Overall, participants were satisfied with the changes and moved about 60% of available assets into the new QDIA.
“The biggest challenge was just making sure all the ‘i’s were dotted and ‘t’s were crossed from an administrative perspective,” says the consultant. “For plan sponsors who are considering a re-enrollment, I would recommend having someone on the transition team who has done one before.”
Another challenge encountered by this plan was that a significant portion of the work force didn’t have online access at work. “We took a multipronged communications approach to try to reach as many people as possible using mail, online and in-person workshops,” the consultant says.
Participants realized a number of benefits:
— Consultant for the utility company
“It’s important to have the right resources in place in advance, but the investment is absolutely worth it. I believe very strongly that re-enrollment is the right thing for participants, and I would encourage plans that are considering it. From a plan sponsor’s perspective, it’s a good work force management practice. In the end, you’ll have participants who are better prepared to retire,” advises the consultant.
Re-enrollment into the QDIA benefited the plan and created a better alignment between participants’ asset allocations and their retirement goals. This may improve the likelihood that participants will achieve greater financial security in retirement. The experience of other plans may differ.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing. Similar information about collective investment trusts can be obtained from Capital Group or participants’ plan provider or employer.
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.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.