The past year has seen, at long last, a tremendous rebound for 401(k) accounts and that good news hopefully can help drive better participant engagement. To secure retirement outcomes in defined contribution plans, human resources consulting firm Mercer outlines 10 steps plan sponsors should take in 2014. And be sure to read blogger Robert C. Lawton’s take on which of these 10 trends he thinks are most significant and why.

Broaden success metrics

When defining success, plan sponsors should look at the bigger picture rather than flat metrics, such as participation levels and deferral rates. Instead, plan sponsors should evaluate participant behaviors that affect retirement outcomes and create metrics and plans that can improve on these outcomes.  

Approach investment risk with wider outlook

According to research on behavioral finance, risk management is more than choosing diversified investments, and the plan’s investment risk profile should be based on participant demographics. When resources are tight, a plan sponsor may want to consider a delegated investment solution for all or part of the plan.

Be aware of TDF fiduciary responsibility

Target-date funds are now under more scrutiny by the Department of Labor. Plan sponsors should determine if the target-date funds in the plan will help participants attain their retirement goals. This should be evaluated using the DOL’s Target Date Retirement Fund Tips for Plan Fiduciaries.

End revenue sharing

There can be problems when some participants pay more in administrative costs because their fund options include revenue sharing. Plan sponsors can achieve better fee transparency and even out administration fees by ending revenue sharing.

Calculate the effects of inflation

As interest rates have remained low since 2000, participants have lost purchasing power by more than 20%, a Mercer study finds. Not only does this affect retirement readiness but it also impacts workforce planning. Plan sponsors can manage this by offering a diversified inflation option.

Offer a financial wellness plan

Considering the major financial events employees face throughout their careers, a wellness program that focuses on planning for these hurdles can be helpful. While this can help workers better prepare for retirement, it can also enhance engagement and reduce stress levels.

Implement programs to improve participant diversification

Mercer research finds that 60% of plan sponsors offer fewer than 15 investment options and many are even open to cutting down to 10 or fewer. With custom funds, participants receive more access to diversification via exposure to alternatives, opportunistic fixed income and simple asset strategies.

Re-evaluate the market

As the financial markets have changed and troubles have surfaced, many vendors have taken on new strategies and target markets. Plans also grow, altering plan sponsors’ needs. These situations may call for a plan sponsor to re-examine what’s out there.

Be open to globalization

Interntional markets account for a larger percentage of the investable universe than U.S. markets. Participant behavioral biases can be reduced by offering access to global investment opportunities, hopefully resulting in better asset allocation decisions and retirement outcomes.

Keep communications fresh

Communication vehicles are changing, especially as more employees rely on mobile technology. For the best communication strategy, plan sponsors should focus on generational targeting and behavioral strategies. Gamification, for instance, has been successful in for employee training and education and can also be used for retirement and financial communication.

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