Defined contribution plans need to move beyond their role as a tax-effective savings vehicles and become more tech-savvy, customized, cost-effective and better governed.
That was one of the key takeaways from the report "Shifts for the DC organization of tomorrow,” released Monday by Willis Towers Watson's Thinking Ahead Institute.
In order to advance the utility of DC plans, which the report notes is on the cusp of happening, an organization must shift its business, operating, investment and engagement models, the report said. For instance, to achieve the next evolutionary phases of DC plans — what the report calls versions 2.0 and 3.0 — organizations must shift their business models from focusing on asset accumulation to focusing on lifetime retirement income.
"The need for change has been clear for a long time," said Bob Collie, head of research at the Thinking Ahead Institute, in a news release. "Even 10 years ago, we talked of a version 2.0 of DC that was built around the purpose of providing income throughout retirement. It's only recently that real progress has started on this front. But momentum has been building, and we expect things to develop quickly from here."
The challenges that need to be addressed in DC plans include coverage, adequacy, technology, a lack of trust and a lack of engagement with participants, according to the report.
Also of note, the report predicts continued industry consolidation in response to commercial, governance and technological demands.
"The history of DC has largely been a story of evolutionary happenstance, rather than working toward a master design plan," Mr. Collie said. "DC has become the world's dominant retirement savings vehicle, and work is needed if it will live up to the responsibilities of this role. The next few years will be pivotal ones in the development of retirement plans all around the world."
The report drew on the findings of a survey and interviews with 10 DC organizations — covering the organizations' mission, operations, governance, investment, member engagement, retirement income strategies and sustainability.