US pension plan sponsors are overcoming some of the serious shortcomings of the defined contribution (DC) structure by adopting new products and strategies designed to transform their DC plans into more effective retirement savings vehicles for their employees, according to a new report from Greenwich Associates. As defined benefit plan sponsors in the private and public sectors struggle with a massive funding crisis, the deficiencies of DC are becoming more apparent and more significant. For example, incomplete DC participation rates have left many employees lacking a retirement savings plan of any kind. Even among participants, long-term investment returns often fall short of expectations since participants often lack the financial expertise required to make sound decisions, and plan sponsors have struggled to find cost-effective means of delivering education and advice. “DC plan sponsors are adopting automatic enrolment, they are incorporating products that improve investment returns throughout the course of an employee’s working years, they are switching to institutional products that minimize fees and they are taking steps to maximize both their own contributions and those of participants,” says Greenwich Associates consultant Chris McNickle. “All of these steps will help improve the economic condition of the nation’s retirees, and for that, plan sponsors should be commended.”
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