Fiduciaries at large corporate defined contribution plans in the U.K. and Ireland aren't living up to their own expectations regarding governance, according to a new report by Watson Wyatt Worldwide Inc.
While fiduciaries tend to devote most of their time and other resources to administrative details, they aspire to focus on qualitative governance activities, such as risk identification and management, investment strategy and member communication, according to the report, which was based on a survey of corporate retirement plan executives.
Forty percent or more of survey respondents said their governance practices were above average in the areas of administration, monitoring administrators and providers, and compliance with legislation, while only about 25% of respondents gave high marks to their efforts in the areas of design of investment fund ranges, monitoring managers and member communication.
Investments and communication top the list of areas that respondents felt needed more attention and could deliver the most value for participants. Respondents also pegged those areas as ones on which they would most like to focus more attention.
“Fiduciaries increasingly believe they should be doing more to help DC members and clearly want to focus more on qualitative approaches,” Gary Smith, senior consultant at Watson Wyatt in London said in a news release accompanying the report. “We would agree that investment is the area where good governance can add the most value and where members struggle most.”
The fall in investment values is shining a light on risk and governance in DC plans, and how the plans can be better managed, defined contribution experts said.
When trust-based DC plans were created, they typically had fewer members and assets than the defined benefit plans that trustees were accustomed to managing, said Andy Parker, a London-based principal and DC specialist at Mercer LLC.
“The focus hasn't been on the new part of the trust (DC plans),” Mr. Parker said in an interview. “This is what's now changing: Some of those DC schemes are starting to have quite a few members” and assets have grown.