PALM BEACH GARDENS, Fla. — Automation and lifecycle funds are the foundation of the next generation of defined contribution plans, asserts Abigail Johnson, president of Fidelity Employer Services Co., Boston.
In a Feb. 27 speech to attendees at Pensions & Investments' 14th annual East Coast Defined Contribution Conference in Palm Beach Gardens, Ms. Johnson said DC plans should adopt automatic enrollment, automatic deferral increases, lifecycle funds as default options, annuity and guaranteed income options, and investment advice. She also said retiree health and retirement income planning need to be integrated.
Ms. Johnson, seen by many as heir apparent to her father, Edward Johnson, chief executive officer of Fidelity Investments, Boston, said the "30-year-long shift" to defined contribution plans from defined benefit plans is accelerating. Indeed, many of the features she believes should be included in DC plans would make them more similar to DB plans than they have been in the past.
Ms. Johnson said as more participants are seeking broader coverage and assured income streams, DC plans must include default options and service providers must focus on simplicity, which could include lifecycle strategies. "Too much choice is perplexing. We have to make it simpler," she said.
She warned of an expected $400 billion shortfall in retirement savings accounts in the years 2020-2030. "There is a great deal service providers and plan sponsors can do right now" to help employees meet their retirement goals, she said. She cited encouraging deferral increases, offering investment advice from a third party, and including investment options that provide guaranteed income in 401(k) plans.