Defined contribution executives need to be both precise and flexible in the managing of their plans, according to fellow sponsors, consultants and providers who spoke at the annual Pensions & Investments West Coast Defined Contribution Conference, held Oct. 26-28 in San Diego.
Precision belongs to corporate governance because ambiguity can lead to confusion or lawsuits. Flexibility belongs to plan design and management because DC plans deal with diverse populations based on age, investment skills and retirement goals.
And no matter how precise or flexible DC plans are, they can expect heightened scrutiny by federal regulators — especially the Department of Labor and the Internal Revenue Service — during the next two years.
One key to successful corporate governance is for DC sponsors to have clearly written investment policy statements — and then to make sure they follow their own directions.
“I am amazed at the number of sponsors that I talk to that don't have an investment policy statement,” said John McCareins, practice leader for outsourced chief investment officer solutions at Northern Trust Corp., Chicago.
Speaking on a panel discussing corporate governance, he said: “It's not just about having an investment policy statement, but (also) about adhering to it. Good governance is about the process.”
Mr. McCareins said he supported the white-label approach for investment lineups — replacing brand-name mutual funds with generic names that better explain an investment strategy and better lend themselves to multimanager options.
White-label options provide greater diversification within an asset class, give sponsors greater agility in changing managers, streamline investment options and give participants greater confidence, he said.
Another corporate governance panelist, Ross Bremen, partner in the investment consulting firm NEPC LLC, Boston, said a recent survey by his firm of DC plan executives found that 64% believe that a majority of their participants won't have sufficient savings for retirement.
When NEPC asked the executives about the most important agenda item, plan fees were first and participant education was second by wide margins over eight other choices that included auto features, lifetime income offerings and customized target-date funds.
Mr. Bremen also polled members of the audience on their corporate governance views. When asked if they agreed with the statement that plan fiduciaries understand their roles and responsibilities, 51% disagreed. When asked about the statement that plan executives don't lose ERISA lawsuits for taking action, they lose for what they didn't do, 76% agreed.