LONDON U.K. defined contribution plan sponsors are increasingly trying to wash their hands of any investment and fiduciary risks by adopting whats called a contract-based arrangement, consultants said.
Contract-based plans usually require no investment monitoring and no manager selection beyond hiring a single provider that offers these services and little employee education.
But such an arrangement might not safeguard companies from their responsibilities as plan sponsors. Indeed, regulators issued new guidelines earlier this year that push for an internal governance arrangement for contract-based plans.
Furthermore, such plans might be fraught with stumbling blocks in the way they are structured offering what some say is too many investment options and not enough investment education and guidance. For example, one plan that was not identified had as many as 97 U.K. equity fund options for participants, according to a paper written by Maria Gouvas, a member of the governance and operations team in Mercer LLCs London office. Best practices generally call for fewer than 20 options, consultants said.
Employers are assuming that theyve offloaded their risks once theyre in contract-based (arrangements), Ms. Gouvas said. But that might be a premature conclusion.
The latest company to announce a shift is Philips Electronics U.K. Ltd., Guilford, which on April 1 will move all new defined contribution assets into a contract-based plan run by BlackRock Inc.s London office.
Alan Lakin, assistant pensions manager at Philips, said the change is a simple solution that allowed the company to efficiently separate its defined benefit and defined contribution plans. Both had been administered under one trust, with about £2.3 billion ($4.6 billion) in DB assets and about £70 million in DC assets.
There was no single reason for the change (to a contract-based plan), but a number of contributing factors, Mr. Lakin said. One of them is that we felt there was some difficulty in dealing with the trust arrangement.