The following is an
excerpt from a just-released research
report from Kennedy
& Advisory (KCRA).
The following is an excerpt from Retirement Consulting: Defined Contribution, a new
report from Kennedy Consulting Research & Advisory ( www.consulting.almintel.com).
In an increasingly volatile economy, now
more than ever, individuals are concerned
with the stability of their retirement plans.
Consequently, employers are now faced with
increasing challenges to ensure that their retirement plans are fair and competitive while
still remaining cost effective for sustainability.
To that end, employers who have not
already done so are increasingly embracing defined contribution plans over defined
benefit plans, shifting responsibility onto
the individual employee and reducing risk,
but also providing the employees with increased freedoms and controls over their
retirement futures. While this change to defined contribution (DC) implies less responsibility on the employer (and that assertion
is partially true from a risk perspective), in
actuality, employers are taking on greater
responsibility in ensuring their workforce is
prepared for retirement.
Retirement readiness and financial wellness have become common phrases from
employers in communicating the importance
of retirement saving to their employees.
Shifts from defined benefits (DB) to DC, an
increasing focus on financial wellness and
retirement readiness, and greater scrutiny
on the value of DC plans and the investment
options that come with them lead to a level
of complexity that calls for substantial objective consulting support.
Employers are increasingly seeking guidance on how best to design and implement
defined contribution plans that offer strong
retirement support to their workforce while
not significantly impacting their bottom line.
These changes require a comprehensive
suite of consulting capabilities that include
ground-up plan design, incorporating aspects
of vendor management, investment consulting and benchmarking, all while ensuring
continued regulatory compliance and taking
advantage of IT innovations that speed up
and streamline execution and operation of
DC plans for employees.
MARKET TREND: Promoting Financial Wellness and Retirement Readiness
Defined contribution plans have been increasing in frequency at an exceptional rate, particularly over the past decade. Thus, the continuing shift from DB over to DC is not a new
phenomenon for employers and consultants.
But a more current trend within the DC space
related to this transition that has gained significant traction in recent years is the growing
desire on the employer side of DC plans to
ensure their employees are adequately prepared for retirement under a system in which
responsibility ultimately falls on the individual. The “new paternalism,” as it is increasingly called, sees employers paying particular
attention to employees’ financial wellness and
retirement readiness at an individual level.
Financial wellness refers to an individual’s overall financial health, factoring in
current savings, long-term savings projections, debts, and other issues that can affect
preparation for retirement. Employers are
increasingly seeking to understand their
workforce’s financial wellness at a group
and individual level in order to determine
the best defined contribution retirement
BY MATTHEW A. MERKER