Defined contribution experts predict 2018 will be a year for sponsors to continue adding or expanding best practices such as auto features and higher initial deferral rates rather than engaging in significant shifts in strategy.
Changes will be evolutionary rather than revolutionary in 2018, said Mike Volo, senior partner, Cammack Retirement Group, Wellesley, Mass. "Things move at a glacial pace," he added.
However, some observers said 2018 will mark efforts by sponsors to assess how plans can better integrate retirement income options. Such an move amounts to a "post-retirement tier" in DC plans' investment lineups, said Toni Brown, a San Francisco-based senior defined contribution strategist at American Funds, part of Capital Group.
Ms. Brown and others aren't forecasting an embrace by more plans for using annuities embedded in DC plans, because they believe the absence of expanded safe-harbor regulations and/or laws represents a significant roadblock. Instead, plan executives and providers are discussing ways to offer more conservative investments, managed to reduce volatility, in anticipation of participants' withdrawing their funds at some point, she said.
"There's been a lot of discussions with sponsors," said Ms. Brown, who envisions investments such as risk-based funds being part of the post-retirement tier. The post-retirement tier could include stocks, such as more dividend-paying equities, and bonds "in portfolios that understand how you take money out and deal with the volatility of withdrawals."
The talks stem in part from sponsors' squeamishness about in-plan annuities and the perceived insufficient regulatory safe harbor to protect them against the failure of an insurance company providing annuities. The lack of portability and concerns about fees also troubles plan executives, Ms. Brown said.
"We're hearing clients say, 'How can we make this a true retirement system? How can we make this better?'" said Ms. Brown. "It's in the talking stage, but the excitement over this has been unprecedented by sponsors."
She expects some sponsors to implement this strategy in 2018 and 2019.
DC consultant Jennifer Flodin also forecasts sponsors' efforts to add more conservative options, in part to educate participants about the benefits of keeping their money in the plan after they retire. "They realize they have more retirees in their plans," said Ms. Flodin, a Chicago-based managing director of Pavilion Advisory Group Inc.
"They need solutions that are more focused on capital preservation," she said. "It could be a global balanced fund or an income fund – a retirement sleeve in the plan menu."
Sabrina Bailey said sponsors are looking for some sort of customized retirement options that lie between target-date funds and managed accounts.
Sponsors are examining ways to get more detailed information about participants so they can better tailor investment options, said Ms. Bailey, global head of retirement solutions at Northern Trust Asset Management, Chicago.
For example, instead of offering target-date funds based solely on a participant's age, sponsors want options that take into account such factors as gender, salary and savings rates, she said. "You have to understand the unique demographics, whether it be from a target-date fund or white labeling or retirement income," she said.