September 25, 2023

Designed for Resilience

Retirement plan advisors and their DC clients are focused on personalization, automation and education that engages plan participants and helps boost retirement security

DC Plan Design Webinar

Our panel of industry experts shares the latest thinking on the elements of DC plan design, including customizing the QDIA, refining automated features, using data to drive engagement and personalization, and embracing participant behavior to craft successful solutions for employees’ retirement security.
Jeri Savage
Lead Retirement Strategist
MFS Investment Management
Julie Varga
Vice President, Product and Investment Specialist
Morningstar Investment Management LLC
Stephen Popper, CPFA, AIF®
Managing Director
SageView Advisory Group
Wednesday, September 27, 2023
2:00 p.m. ET

Today, defined contribution plan participants are faced with the complex challenges of inflation, rising interest rates and continued economic uncertainty. As retirement plan advisors survey plan sponsors’ priorities in helping their plan participants achieve financial security, they are assessing new product offerings, diversification, employee savings behavior and regulatory issues. There are silver linings among the clouds, with automation, innovation and education helping shape successful DC plan design to drive positive participant outcomes.

“Plan sponsors are focused on ensuring that they have the right plan design to be responsive to all market environments,” said Jeri Savage, lead retirement strategist at MFS Investment Management. The 2023 MFS Global Retirement Survey revealed that plan participants feel impacted by the current macro environment, and they are worried about inflation. “In this survey, we found that 60% of participants say the recent increase in inflation has caused them to think differently about retirement,” Savage said. The survey results also showed that participants fear that they will need to save more and work longer than they planned because of the market environment, and these sentiments have increased since the 2022 survey.1

We believe a key focal point for plan sponsors is a positive retirement outcome for their participants, one they can pursue across all economic environments. “Plan sponsors are still laser-focused on driving participant outcomes. The approaches may change slightly, based on inflation and market conditions, but the core desire is to make sure that participants are achieving their version of success, said Nathan Voris, head of channel strategy at Morningstar Investment Management LLC. “This can happen by thinking about what is the appropriate [qualified default investment alternative] and how plan sponsors can engage participants, highlighting all of the plan benefits and driving adoption forward.”

Overall financial wellness also continues to be a focus. “We’re seeing the trend of looking at the whole picture for the individual and trying to solve that in a more comprehensive way,” he said, while acknowledging that some employees face complex financial priorities that include student loans and general debt. “We believe the programs that will drive more engagement and produce more positive outcomes will be the ones designed to meet participants’ [specific] needs, and we should be building products and platforms that look at [participants’ full financial picture] in a more holistic way,” Voris said.


One of the more technical details in plan design is fine-tuning automated features to address market dynamics. “Inflation has an impact on employees, their salaries and income replacement in retirement,” said Stephen Popper, managing director at SageView Advisory Group. “One option is to have automatic contribution escalators, and we’re finding that plan sponsors are [much] more interested in this than before.”

The value of an automated tool set, which auto-enrolls participants into the QDIA and auto-escalates contributions on a regular basis, is to give participants ownership in the management of their retirement account. “If a plan has never had automated escalators, they’re open to it, and if they did have them, but were stopping people at 10% or less, now they’re discussing what the cap should be,” Popper said.

“A number of our clients have decided not to apply a cap and let the employee take ownership of their account, turning it down when they feel like they’ve reached the right deferral amount to hit their retirement goals,” he added.

“But our clients continue to provide participants with financial education that raises awareness about how inflation can affect their retirement income projections,” said Popper. “We need to do a better job of showcasing those issues for participants and encouraging conversation.”

Read: 2023 Retirement Plan Landscape Report


More and more people are trusting the employer to offer education and financial advice because they don’t trust the open marketplace.
Stephen Popper
SageView Advisory Group

“There’s a lack of retirement confidence these days,” said Savage at MFS. Just 34% of participants said they’re confident that they’ll be able to retire at the age they want, according to MFS’ survey, with both men and women citing the effects of inflation as their top concern.

“We may need to rethink typical plan design to better match participants sentiment,” Savage said. Women tend to be more concerned with having enough income in retirement and outliving their retirement savings, while men are more concerned about outliving their savings, she said, adding that the current market environment has caused both groups to desire a more gradual transition into retirement. “But we continue to focus on this idea that people retire at age 65 and we’re building DC plans around that, while participant’s situations are more complex,” Savage said. “There’s no one-size-fits-all solution to the retirement income puzzle.”

MFS survey respondents who were 45 or older said they expected to rely in part on: Social Security (83%); retirement savings (74%); bank account products (56%), such as a savings account or a money market account; and part-time employment (42%). “This coincides with the thought of making retirement a more gradual event rather than a full stop,” she said. (See visual below.)

No One-Size-Fits-All Solution to the Retirement Income Puzzle
Source: MFS 2023 Global Retirement Survey, US respondents, Q: Select all potential sources of retirement income in retirement. This question was only posed to respondents age 45+. Respondents could choose more than one response so responses do not total to 100%.
See full survey methodology below.

“For the industry as a whole, when we think about what a retirement plan looks like and how it evolves, the ways in which we engage with participants need to evolve as well,” she noted. MFS’ survey showed gender and generational differences when participants were asked how they receive investment advice, with women more likely to turn to a family member and men more likely to use a financial advisor. Generationally, millennials are more likely to turn to their employers, while Generation X is more likely to use financial advisors. “There is a lot of information that plan sponsors could use in how they reach out to their participants,” Savage said. “There’s a large opportunity here for advisors and sponsors to help facilitate the connections that participants are seeking.”


Financial advisors are also helping their DC clients think about current advances in participant data analysis. “In the mid-2000s, there wasn’t a lot of [participant] information available to us, but nowadays we’re getting a lot more data from record keepers and from the individual participants themselves,” said Julie Varga, vice president, investment and product specialist at Morningstar Investment Management LLC. “As plan sponsors are looking at their entire workforce, we can provide information to show a plan how their employees should be investing and assessing asset allocation,” she said. The more granular information can help plan sponsors determine if they should consider managed accounts over target-date funds, for example. “These different types of data analytics are working to provide more personalized recommendations than were available in the past,” Varga said.

“When we look at behavioral research, we can see that a reasonably limited choice is an important aspect of plan philosophy,” said Popper at SageView. “We still see [some] retirement plans providing 30 to 40 investments, while research shows that plans should actually offer 10 to 15 investments plus a target-date series or a managed account for the QDIA,” he said. “From an automation perspective, 3% automatic [contribution at] enrollment was the norm; this is no longer. Now, auto-enrolling at [the 6% level] in year one is acceptable, and then escalation by 2% every year thereafter, until the employee turns it off,” Popper said. “People are opting out at rates lower than expected, and automation is a critical piece going forward.”

1 See full survey methodology below.

A multi-tiered Approach

Providing a range of investment options in a DC plan creates flexibility that’s appropriate for different participants

As retirement plan advisors and DC plan sponsors consider the tools, resources, investment products and services needed to support participant outcomes, it’s important to recognize the requirements of diverse populations and build in flexibility to meet them. “We need to think about it holistically, and it’s important for advisors to take a multi-tiered approach,” said Voris at Morningstar Investment Management.

One participant might have $60,000 in DC assets, he noted, while another might have several million dollars, which necessitates an array of products or services that can address the range of individual circumstances. “In the same way, when you create a core menu, you’re choosing a number of investment options to help an individual construct a portfolio based upon their individual preferences, risk tolerance, time horizon and savings deficit — all the different inputs that go into that analysis,” Voris said.

Personalization has come to the QDIA as well. “A lot of new thinking regarding approach, menu design and default options is about data availability, personalization and the ability to integrate that into the QDIA successfully,” he said. Morningstar Investment Management is seeing personalized QDIAs in several ways, including the use of managed accounts as well as a dynamic QDIA, where participants transition into a managed-account structure as they near retirement.

“We are also exploring how we can improve the outcome for the average participant through the use of data to personalize the QDIA,” Voris said. Some record keepers are adding noncore capabilities to their managed-account platforms, which means “asset classes that wouldn’t necessarily fit in the core menu can now be offered on a managed-account platform.”

Read: The Retirement Income Dilemma


“Plan sponsors need to determine what they’re solving for, and from their point of view, there are basically two options,” said Savage at MFS. “Do they want to be a savings plan, where participants accumulate balances throughout their working years, and upon retirement they are likely to leave the plan? Or do they want to be a destination plan, which is actively trying to retain retirees in the plan?”

There’s no right or wrong answer, she said, adding that “it can be a useful framework for sponsors to think about the role of the DC plan because there can be design and implementation implications.”

When the sponsor’s philosophy points to a destination plan, then plan design, investment options and supporting services are aimed at helping participants retire and stay in the plan, Savage explained. As part of the plan offerings, “retirement income offers an opportunity to align corporate objectives with employees’ retirement goals,” she said. “Conversely, if the philosophy is to create a savings plan, then the sponsor would think about supporting services to help retirees transition into retirement and potentially out of the plan,” she said.

We are also exploring how we can improve the outcome for the average participant through the use of data to personalize the QDIA.
Nathan Voris
Morningstar Investment Management LLC


“When we’re thinking about DC plan design, we have a wide spectrum of offerings that can be available,” said Varga at Morningstar Investment Management. We’ve seen that many target-date funds get more conservative over time, but they’re based on the single data point of age and don’t necessarily offer added personalization, she pointed out. “With managed accounts, you have the ability to help employees that may not have high enough balances to have access to a financial planner but can benefit from a more personalized approach than simply investing in a target-date fund,” she said.

“We’re starting to see greater movement on managed accounts than we ever have before,” said Popper at SageView. A managed-account solution involves participant data analysis that can help adjust individual asset allocations, as opposed to providing the same advice to two employees, each with different savings and income levels.

Managed accounts are also relatively low-cost for the customized advisory solution they provide. “The pricing has become more reasonable,” Popper said.


Many financial advisors are helping 401(k) plan sponsors evaluate collective investment trusts as a growing alternative to traditional mutual funds, mainly because of lower costs and flexibility for customization. But they are also addressing their clients’ perceptions about implementation and the potential cost of additional reporting and documentation requirements.

CITs represented 32.8% of 401(k) assets in 2022, $2.71 trillion out of a total $8.25 trillion, according to Cerulli’s U.S. Retirement Markets 2022 Report, said Savage at MFS. The other two categories exceeding $1 trillion were mutual funds, at $3.88 trillion (47.1%), and institutional separate accounts, at $1.1 trillion (13.1%). “Where you once had to be very large to qualify for a CIT, now there are many CITs that have share classes with zero or minimal required investments,” she said, which has opened the door for small- and mid-sized DC plans.

“CITs are obviously a growing portion of the market, but they’re not permissible in [individual retirement accounts], for example,” Savage said. When making the decision to implement a CIT, sponsors need to understand their investment characteristics, where they best fit in the plan’s overall portfolio and the value of the after-fee savings, she advised.

“Plan sponsors of all sizes are looking at including CITs in their plans,” said Varga at Morningstar Investment Management. “In my opinion, the adoption has increased dramatically over the years, and the structure of CITs has been vetted well by the industry, so plan sponsors are more comfortable with them. Since the minimums have decreased quite dramatically, they’re more likely to be used by plans that did not have enough assets to consider them previously,” she noted.


When it comes to the SECURE 2.0 legislation, advisors and plan sponsors are looking at three sets of provisions, those related to: participation and access; retirement income and distributions; and financial wellness, including emergency savings and repayment of existing debt and student loans. “Sponsors are still interpreting these provisions, working with their service providers to put mandatory ones in place and evaluating the optional ones, especially those with a longer timeline,” said Savage.

“In the MFS global retirement survey, we found that participants have competing priorities: 89% of millennials, 77% of Gen X and 63% of baby boomers said that financial obligations get in the way of saving adequately for retirement,” she said. Following the passage of SECURE 2.0, more plan sponsors have been weighing the implementation and costs of emergency savings and student debt repayment programs, she noted.

There are still many aspects of SECURE 2.0 to be worked out. “The one that we are wrestling with is the catch-up contribution provision for those [who] make more than $145,000 a year,” said Popper at SageView. As payroll providers take 90 to 120 days to make these updates, “this created chaos in the record-keeping space, [and] it is an important issue for all plan sponsors,” he said. The deadline for this provision was January 1, 2024, but on August 25, the Department of Labor announced it was postponed by two years.


While DC plan participants continue to show interest in environmental, social and governance issues, advisors find that plan sponsors continue to be cautious in offering ESG-themed products on the core investment menu.

There’s a large opportunity here for advisors and sponsors to help facilitate the connections that participants are seeking.
Jeri Savage
MFS Investment Management

“We do see interest in ESG at the participant level, but certainly not a lot of additional product adoption on the core menu,” said Voris at Morningstar Investment Management. Self-directed brokerage accounts, available through many 401(k) plans, allow participants a flexible means to invest in alignment with their ESG preferences. “There are thousands of ESG options available through that avenue, and that’s where the is trend going, as opposed to adoption on the core menu,” he said.

Diverse perspectives on ESG investing across the industry continue to be a challenge for plan sponsors and advisors. “It’s difficult within this industry to have a definition that covers what everybody is looking for [on ESG] initiatives,” said Varga at Morningstar Investment Management. “Having a brokerage window, where there is a wide selection of mutual funds and other investments, can help cover whatever aspects of ESG or [diversity, equity and inclusion] an individual participant might be interested in,” she said.

“Our job as consultants and employers is to provide options to employees,” said Popper. “If I can have access to a brokerage window in my 401(k) or 403(b) plan, then I can choose from thousands of mutual funds, with a wide selection that focuses on ESG investments,” he said.

Pulling back to the big picture, “we look at the DC plan [in terms of] what we call the three R’s: the recruitment, reward and retention strategy,” Popper said. “There’s an opportunity to build long-term loyalty when it comes to retention if we communicate that we’re trying to offer participants financial security for the longer term and also help younger workers get on the right path.”


An engaging perspective

Participants’ understanding of their overall financial picture boosts confidence and helps improve retirement outcomes

A constant theme for all DC plan advisors is participant education, and delivering savings and retirement planning advice that can help improve financial security.

“The industry has been working on this for 30 years, and by and large, the needle has not moved. It’s a really hard problem to solve,” said Voris at Morningstar Investment Management. Plan sponsors have worked to bring the DC plan in line with participants’ financial issues and other investments, so that an individual has a more holistic financial picture. That involves integrating plan-related advice with education that addresses student loans, overall debt reduction and emergency savings, for example. With that approach, “communication, education and engagement will support efforts to make 401(k)s a part of a financial well-being suite that helps people every day, as opposed to once a quarter when they’re checking their 401(k) balances,” he said. (See visual below.)

The Advice Continuum
Source: Morningstar Investment Management LLC

Financial advisors also continue to play a crucial role in encouraging the engagement of plan sponsors and participants, said Varga at Morningstar Investment Management. Many different groups are trying to serve participants, including health-care companies, employee assistance programs, record keepers and credit unions, she pointed out. “But often, the advisor that works on the plan is the one who knows the company culture and is primed to drive outcomes that meet the plan sponsor’s definition of success at the participant level. Embracing that relationship between sponsor, advisor and participant is essential for helping enhance participant engagement,” she said.

MFS’ survey found that participants are looking for in-person advice. Seventy percent of survey respondents indicated if their workplace retirement plan offered access to an advisor, they would use that resource, and 45% said they would prefer to receive that advice in person, said Savage at MFS. “The takeaway is that everyone’s puzzle pieces are different, and participants could benefit from professional financial advice to help put the pieces together into a cohesive retirement income plan.”

“We performed an analysis of participants nearing retirement, comparing hypothetical retirement outcomes across recent market conditions, and found that a participant with a high equity allocation didn’t fare as well as someone with diversified fixed-income exposure — not just having an allocation to government bonds, but also short-term bonds, [Treasury Inflation-Protected Securities], global bonds, emerging market debt and high-yield bonds,” Savage said.2 “We’re encouraging sponsors to consider the overall fixed-income allocation and its evolution along the glidepath when they’re selecting and monitoring a target-date fund. Participants in the accumulation phase should seek to maximize capital appreciation and lower the potential for capital losses in their later years,” she said.

Read: On-Demand Webinar Library from Morningstar Investment Management LLC


Popper at SageView emphasized how important it is for plan sponsors to educate participants about where they are on their savings journey and the range of choices they have, especially for those who want to develop more financial acumen. “This brings us into a unique environment. More and more people are trusting the employer to offer education and financial advice because they don’t trust the open marketplace,” he said, noting that web searches don’t deliver the advice they want.

“A more sophisticated employee will know they need to hire a certified financial planner who charges them a flat rate, like an accountant, and serves as a fiduciary,” he said. But other employees may simply want their employer to provide that advice and fiduciary relationship as a part of their employee benefits package. In fact, more employees are asking for this access today. “That’s a huge win for the marketplace, because these are not people who need to meet with their advisor on an annual basis; it’s every three to five years. The marketplace can price this very efficiently. If we meet with an individual every three to five years, it’s a 20% utilization on the high side, and we can charge less on that basis alone,” Popper said. “It’s also a win for the American worker, because they will have access to education and advice that was not available to them in the past.”

Read: Revisiting the Role of Fixed Income Along the Retirement Savings Journey


In the DC plan industry today, the subject matter expert — who may be the DC plan financial advisor or consultant — has become more important, Popper said. “It used to be, 25 years ago, that the friend of the [chief financial officer] would do wealth management, and they would get paid on the 401(k) plan,” he said, which has faded away with formal regulations and fiduciary requirements on the DC plan management. “You can’t just [advise on] five plans and consider yourself a retirement plan expert. You need to commit to being educated and well informed on all the discussions and nuances of the retirement space, as well as the dynamics of legislation in Washington.”

“We’re seeing more advisors vacating the DC space, and others [who] are very willing to bring in the subject matter experts, whether it’s through a partnership or in-house talent that they never had before,” Popper said. “They still want to do the wealth management piece on the individual side, but they really don’t want to touch the the 401(k) side,” leading to more retirement plan advisor specialists and wealth advisors collaborating to deliver DC plan services.

“All ships will rise if we can get as many plan sponsors as possible adopting the best practices for being prudent fiduciaries at the same time.”

2 See full survey assumptions and methodology below.