News You Can Use: Mercer puts out ‘10 for ’10’ list for DC sponsors

To start the new year, Mercer has combined some of my favorite things: lists and clever plays on words/numbers — oh, and good information, too. The consultancy’s “10 for 2010” list  has published a “10 for 2010” checklist of New Year’s resolutions defined contribution plan sponsors should make now to address investment and plan-design concerns, fulfill fiduciary responsibilities and help participants meet their retirement objectives.

With Americans still posting such awful savings rates (I’d give them a pass, given the recession, but they were awful even before the recession started), you’d think plan sponsors would need more than 10 items to give their plans a boost. But, I guess you can only lead a horse to water.

At any rate, here’s Mercer’s 10 for ’10:

1. Adopt a fee policy statement and update benchmarking of plan fees.
The Department of Labor and Congress appear more determined than ever to mandate comprehensive fee disclosure to participants. Meanwhile, increasingly sophisticated fee lawsuits are beginning to win major settlements. Administrative fees must be transparent and reasonable. Less expensive investment management may be achieved through institutional mutual funds, collective trusts and/or separate accounts. Each investment fee should be evaluated on an option-by-option basis. A fee policy statement can document committee due diligence and rationale for plan fees, and help guide committee actions, which should include periodic benchmarking of both investment and administrative fees.

2. Review the glide path for your target-date funds.
It is increasingly important that plan sponsors review participant demographics relative to the glide path of their target-date funds. Understand how the glide path was developed. Evaluate the underlying funds – Are they “best-in-class”? Consider creating customized target-date funds to provide participants with an appropriate glide path and reasonable underlying investment management.

3. Communicate your plan’s fund options as a two- or three- tiered structure to increase participant understanding.
Limited investment knowledge is one of the biggest obstacles facing participants in developing a well-diversified portfolio. The plan’s current line-up can be communicated as lifecycle funds and core options. Providing participants with sufficient choices in an easy to understand format allows for better investment decisions. 

4. Consider adding retirement income products or spend-down solutions.
With ever-increasing dependence on DC plans and greater numbers of baby boomers hitting retirement age, spend-down solutions will only grow in importance. In response, the DOL recently announced that it will explore steps to encourage employers to offer annuities to plan members. New products continue to appear on the market, but finding the right solution and analyzing costs remain challenging. As a first step, plan sponsors should educate themselves on the need, and the range of potential solutions.

5. Take steps to improve participant savings.
Targeted communications, automated plan features and persistence have proven effective in getting employees on track towards adequate retirement savings. Make sure employees have access to all available tools and options, including a well-communicated Roth feature, which could benefit younger participants, those anticipating higher future tax rates and those impacted by IRS or plan limits.

6. Confirm that all investment funds in the line-up are appropriate.
Some funds might take on more risk than is appropriate. Some may use securities lending. Review each fund in the plan, including an up-to-date evaluation of performance, style and risks.

7. Understand the complexities of your stable-value fund.
Stable-value funds are complex products due to the “smoothing” of investment returns, and fees are on the increase. Review the underlying investments as well as the wrap providers, their contract provisions and fee terms.

8. Make sure your plan is in operational compliance.
With the economy straining both in-house and third-party resources, compliance may be suffering. Problems tend to surface at the most inconvenient times, including disconnects between plan operation and plan provisions, incorrect compensation and incorrect implementation of automated features. The solution is an organized and strategic review.

9. Review and revise your plan’s Investment Policy Statement (IPS).
An up-to-date IPS is an important fiduciary responsibility. Update this document annually.

10. Get ready for the new Schedule C reporting requirements.
Revisions to the 2009 IRS Form 5500 require more detail on service provider fees and expenses, a change intended to encourage fiduciaries to review plan fees as part of the annual reporting process. Starting the 2009 Form 5500 process as early as possible – well before the filing deadline – will help plan sponsors resolve any plan-specific issues.