The New Defined Contribution Landscape

The COVID-19 pandemic has transformed the macroeconomy, spawned the Great Resignation and jolted markets – including changes that are accelerating evolution of the defined contribution (DC) landscape. At the same time, plan sponsors confront regulatory developments such as the SECURE ACT, substantial growth in assets, pressure to align plan features with participant needs and preferences, and disruptive trends such as inflation. Here we outline five key themes we believe plan sponsors will need to address as they cultivate and evolve their plans to meet participant demands and expectations.

1. Offer a more personalized approach to QDIA participants

Advances in technology, data and analytics are driving demand and expectations for more personalized experiences and customized solutions – and this is increasingly the case for qualified default investment alternative (QDIA) options.

To be sure, off-the-shelf target date funds (TDFs) have been – and continue to be in our view – an effective tool to guide participants through the retirement savings journey. However, the degree of personalization and appropriateness can be limited because TDFs are based chiefly on a single factor – the participant’s age.

Managed accounts, of course, are at the opposite end of the customization continuum. They generally offer greater personalization. Yet adoption has been historically limited by the need for participant engagement, perceived complexity and often significant incremental costs.

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In between these two poles of customization lie new solutions that may offer personalization without significant additional cost or burden on participants. These include personalized target date funds and dual QDIAs. They can respond to the increasingly wide range of circumstances and objectives investors face as they approach retirement (see Figure 1).