Amid record litigation and workforce management challenges, many pension plan committees are asking what steps they can take to put members on the path to creating an income stream. fully funded pension.
To address these challenges and more, a new blog post from Russell Investments, 10 Steps for DC Plan Sponsors to Consider This Year, reviews key strategies for navigating the legal and regulatory issues facing trustees. of diets.
The second in a five-part series on the outlook for investing in 2022, Kerry Bandow’s article also examines tactics for better funding future liabilities, including increasing savings and creating investment strategies. more effective for active members and retirees. “Today’s DC committees face significant challenges in preparing their members for retirement, which are further complicated by a myriad of legal and regulatory concerns. However, committees must avoid being paralyzed by fear of litigation if they hope to improve participant outcomes,” Bandow writes.
Here are the 10 areas he identifies that planning committees should consider to avoid legal risks and help improve participant outcomes.
1. Review and update plan governance to meet new challenges. Establishing beliefs and formal investment goals for the plan is an important first step in the process of improving governance, the post suggests. “They are considered a central factor in global best practice and foundational models for better governance, and are now used by many of the world’s largest plans,” Bandow writes. He adds that establishing beliefs saves time and allows committees to focus more on fiduciary risk management, as well as strategies to improve participant outcomes.
2. Improve governance through delegation of investment decision-making. While the SECURE law provided reforms to broaden the scheme’s coverage, MPs and PEPs are no panacea for avoiding fiduciary and litigation risks, the post warns. “Russell Investments supports committees that delegate their investment decisions, but we believe that an internal sub-committee for those with sufficient resources, or an outsourced Chief Investment Officer (OCIO) arrangement, is more appropriate for plans. medium and large,” says Bandow.
3. Cybersecurity. Even though the DOL released a list of tips for hiring service providers last April, Bandow suggests that it’s not enough to simply ask the right questions or gather information from plan service providers. “We recommend that fiduciary committees review responses with their internal IT team or with a trusted external vendor, to ensure that the vendor’s processes are reasonable and considered best-in-class,” he advises.
4. Environmental, social and governance investment. Noting that the DOL’s recent proposal aims to make it easier for plan trustees to integrate ESG into their DC plans, Russell believes that the most appropriate way for plan trustees to integrate ESG, while minimizing their legal and regulatory risk, is to take advantage of ESG integration. , which takes into account factors that have a clear financial benefit.
5. DC Plan Funding Policies. When it comes to improving participant outcomes, sponsors should use participant inertia to their advantage, the post further suggests. “Optimizing the use of automatic features is among the strategies that likely have the greatest impact on improving personal capitalization ratios,” Bandow writes. He emphasizes that it is essential that employers understand the impact of their decisions on plan members’ preparation for retirement and that periodic re-enrollment should also be considered.
6. Consider using private securities in white label and custom TDF wallets. Observing that DB plan trustees have long created portfolios with an appropriate balance between yield-seeking and hedging strategies, the post suggests that DC plans that offer white-labeled portfolios or custom TDFs should consider incorporate similar strategies. “While not suitable as a stand-alone option, Russell Investments believes that skillfully managed exposure in a personalized TDF or white label fund to illiquid assets has the potential to improve the risk profile and return relative to comparable liquid assets in many market environments,” Bandow said. To mitigate legal risks, plan sponsors will want to discuss these matters with a lawyer, he advises.
7. Rethink basic menu design and portfolio structure. As it becomes even more important to have a well-designed core menu to improve the likelihood of retirement success, the post suggests that including a level of active and passive investment is a reasonable approach. Additionally, for committees looking to engage attendees, the company believes that using a white-label multi-manager structure to consolidate and simplify the plan menu is an appropriate step, adds Bandow.
8. Revisit the QDIA. “Just as pension plan funding and investment policies are unique to each sponsor, DC participants would likely benefit from more comprehensive and personalized advice for better results,” observes the post. According to Bandow, one alternative that is beginning to garner interest is a hybrid approach where participants initially default to a TDF, but then transition to a managed account as they approach retirement.
9. Provide retirement income solutions. With the SECURE Act providing a new realm of fiduciary security, more committees are now expressing interest in evaluating retirement income solutions for their DC plans. The post suggests that initial efforts should first focus on strategies that incorporate automatic or default distribution options into the plan’s QDIA and managed account option if available.
10. Managed effective implementation. In DC plans, implementation comes in many forms, including transitioning assets from one investment manager to another, centralized implementation of multi-manager portfolio investments, or a implementation within a custom TDF, the post explains. “We believe plans should engage with implementation specialists as it is a natural extension of the current focus on fees,” Bandow writes, adding that effective implementation reduces costs, keeps participants fully invested in the markets, and avoids blackout dates typically associated with transitions.