How employers can help ensure better outcomes

According to a blog post by Russell Investments' Kerry Bandow and Holly Verdeyen, by 2025 more employers will adopt some of the characteristics of the most successful pension plans.

The steps they recommend fall under three main categories: updating investment governance structures, the need to increase savings to better fund these future "liabilities" and the importance of using more efficiently managed portfolios. Here are the 10 characteristics, and Russell's estimate of the probability they are implemented:

Establish investment beliefs

Investment beliefs are a series of high-level principles, unique to each committee, that guide decision-making and supersede the personal views of individuals. They are foundational for improved governance, and should become standard for all large DC plans. Probability of implementation: High

Delegate investment decision-making

DC committees, often composed of senior-level executives with competing priorities and limited capacity, would benefit by deciding to focus more time on strategy and outsource investment decisions to either an internal subcommittee or to an outsourced chief investment officer. Probability of implementation: Medium

Expand coverage through MEPs

With the passage of legislation supporting open multiple employer plans, they are very likely to become a viable alternative for both small and large employers by 2025, resulting in a dramatic increase in the number of workers covered by a plan. Probability of implementation: High

Lifetime income disclosures

Recent legislation will require private-sector DC plans to include an estimate of projected monthly benefits in employee statements, allowing participants to use the tools provided by their plan's record keeper to more closely approximate the total assets needed at retirement, and adjust their funding level to reach that goal. Probability of implementation: Very high

Turn behavioral headwinds into tailwinds

Much like how organizations periodically review the funding policies for their pension plans, it is critical that employers understand the impact their decisions have on funding DC benefits. An increased emphasis on aligning plans with organizational priorities will help sponsors focus on strategies to ensure that participants are on track to reach retirement goals. Probability of implementation: High

Utilizing retirement readiness studies

Similar to the approach of evaluating a pension plan's funding ratio, plan sponsors should periodically conduct a retirement readiness study to better understand the equivalent collective "funded status" of participants in their DC plan. Probability of implementation: Very high

Alternative or diversifying strategies

Incorporating alternative strategies such as real estate, hedge funds and private equity can add diversification to participants' portfolios, perhaps using a white-label structure for the core investment menu or in custom target-date funds. Probability of implementation: Low

Personalized default options

Advances in retirement technology have paved the way for a new category of default solutions that are personalized to each participants' unique characteristics and preferences. Since record keepers now allow plans to use almost any manager in their investment menu, hopes are that they will also move to open architecture for managed account providers, paving the way for broader availability of these types of solutions. Probability of implementation: Medium

Efficient implementation

The pitfalls of relying on money managers to transition assets between mandates are becoming more apparent as DC plans move away from mutual funds to more institutional structures. Efficient investment implementation reduces turnover and trading costs, keeps participants fully invested in the capital markets and avoids blackout dates and performance holidays commonly associated with transitions in DC plans today. Probability of implementation: Medium

Replacing pension payments with income from a DC plan

Committees should consider adding a retirement tier, including both guaranteed and non-guaranteed options, designed to provide predictable income. Along with the recent passage of the SECURE Act, this provides enough incentive for plan sponsors to introduce decumulation options, which will result in growing use of these strategies by 2025. Probability of implementation: Medium