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U.S. employers eyeing innovative features for defined contribution retirement plans, Willis Towers Watson survey finds

Retirement|Investments
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December 7, 2020

ARLINGTON, VA, December 7, 2020 – A majority of U.S. employers are eyeing innovative features for their defined contribution (DC) plans to boost their value, fortify retirement savings and enhance employees’ overall financial wellbeing, according to a survey by leading global advisory, broking and solutions company Willis Towers Watson. The survey also found employer interest in lifetime income options is accelerating as plan sponsors look for ways to help employees generate a steady flow of income in retirement.

The 2020 U.S. Defined Contribution Plan Sponsor Survey found two in three employers either have or are very interested in adding at least one innovative design feature to their plan. The most popular feature reported is employee assistance with building emergency funds for rainy days through after-tax contribution provisions. Other features employers have adopted or are considering are student loan repayment options linked to the DC plan as well as allowing employees to choose between a variety of benefits, including DC plan contributions.

“Providing employees with a financially secure retirement goes beyond enrolling them in a DC plan,” said Alexa Nerdrum, managing director, Retirement, Willis Towers Watson. “Employers recognize the financial stress their employees are facing and understand the support a robust DC plan can bring during employees’ working years and in retirement.”

The survey also found momentum for lifetime income options to help generate a steady stream of income in retirement from DC plans is accelerating. Interest in lifetime income solutions has increased fourfold since 2017, indicating an increased focus on retirement spending, not just retirement savings. Roughly three in 10 employers currently offer or are considering offering a lifetime income in-plan option.

Employees’ financial wellbeing and its potential impact on organizations is top of mind for many employers. About a third of respondents (34%) indicated that short-term financial stress among workers is creating workforce challenges, up from 26% three years ago.  Additionally, 36% believe financial stress will present future workforce challenges.

“In a world where fewer and fewer workers are relying on a traditional pension plan, the responsibility for building adequate retirement savings and generating income in retirement falls primarily to them. Employers recognize this and are in the best position to provide support and guidance. And, as our research shows, most employers are taking an active role in helping their employees achieve that goal through their DC plans,” said Michele Brennan, U.S. leader, Defined Contribution Solutions, Willis Towers Watson.

Other findings from the survey include:

  • DC fee litigation: The vast majority (80%) of plan fiduciaries report that managing fees is a major priority. This represents a double-digit (14-percentage-point) increase over the past three years as lawsuit activity targeting DC fees has continued unabated.
  • Risk management: Over a third of respondents (37%) indicate managing the cybersecurity of participants’ accounts is their top risk management and fiduciary concern. About one in four (24%) is very concerned over the selection and monitoring of investments and keeping plan fiduciaries current on regulatory and market trends.
  • Target-date funds: There is a growing focus on target-date fund (TDF) “fit,” with the survey finding a 53% increase in the number of committees reviewing TDF suitability with participant needs.
  • Delegated investment consulting: The percentage of plan fiduciaries that use delegated investment consulting services has more than doubled over the past three years from 6% in 2017 to 15% this year.
  • Reinstating employer contributions: The majority of employers that suspended or reduced employer contributions this year expect to reinstate them by 2021, with 60% reinstating the contributions at the same level as prior to their suspension/reduction.
  • Inclusion and diversity: Close to two-thirds of employers have reviewed or plan to review various aspects of their DC plan as part of their inclusion and diversity strategy.
  • Fees: Three in four respondents (75%) have benchmarked their recordkeeping fees over the past three years, with many seeing meaningful results. About two-thirds (64%) reported their benchmarking resulted in lower administrative fees, while a third (32%) were able to reduce investment expenses.

About the survey

The 2020 U.S. Defined Contribution Plan Sponsor Survey was conducted in September and is based on responses from 464 U.S. employers that sponsor at least one DC plan. Fifty-two percent of respondents had at least $1 billion in plan assets.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.

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