In a rapidly evolving landscape of defined contribution (DC) plans, plan sponsors are navigating increasing complexity to ensure robust retirement benefits for participants. With DC plans holding $12.5 trillion in assets as of 3Q 2024, these plans are integral in shaping retirement outcomes for individuals across the United States. As we step into 2025, plan sponsors must strategically focus on optimizing investment strategies, cutting down costs, and enhancing participant education to bolster retirement readiness effectively.
Top Priorities for DC Plans in 2025:
Target Date Fund Selection:
The Department of Labor has outlined best practices for selecting target date funds (TDFs), emphasizing the importance of key considerations such as:
- Establishing a structured process for comparing and selecting TDFs
- Understanding the underlying investments and glidepath of TDFs
- Reviewing fees and investment expenses associated with TDFs
- Leveraging available information for informed decision-making
- Documenting the selection process
- Developing robust employee communications strategies
Evaluating Investment Fees and Share Classes:
Often, plan sponsors commit to robust investment strategies but may overlook the impact of expenses and share classes on participants’ outcomes. By meticulously assessing the fees associated with investment options and opting for transparent share classes like zero-revenue shares or collective investment trusts (CITs), plan sponsors can lower overall costs for participants while ensuring fee transparency and cost efficiency.
Analyzing Investment Lineup Structure:
Routine investment reviews are essential, but it is equally crucial for plan sponsors to periodically evaluate the investment lineup structure, including assessing categories and active versus passive management. By conducting structured reviews every three years or as demographics evolve, plan sponsors can tailor investment menus to better suit participants’ needs and investment knowledge.
Providing Comprehensive Financial Education:
Employee financial stress can significantly impact workplace operations, highlighting the need for comprehensive financial education resources. Encouraging one-on-one meetings with financial educators and offering tailored financial wellness benefits can aid employees in navigating personal financial challenges effectively.
Committee Structure and Responsibilities:
Documenting committee structure, maintaining a fiduciary file, and guiding new committee members through an onboarding checklist are essential steps for committees in 2025. These measures ensure transparency, accountability, and ongoing education for committee members to carry out their fiduciary duties effectively.
Monitoring Trends in Litigation and Regulation:
Staying abreast of legislative changes and emerging litigation trends is critical for plan sponsors. By collaborating closely with advisors and proactively addressing issues like fee reasonableness and forfeiture asset usage, sponsors can mitigate fiduciary risks and adapt to evolving regulatory landscapes effectively.
Conclusion:
As custodians of millions of employees’ financial futures, plan sponsors are pivotal in shaping retirement outcomes. By prioritizing investment optimization, cost efficiency, governance, and participant education, sponsors can drive meaningful impact in 2025 and beyond. Continuous assessment, strategic decision-making, and adaptation to changing market conditions will be instrumental in ensuring DC plans remain impactful and aligned with participants’ needs. By focusing on these key priorities, plan sponsors can enhance retirement readiness and reduce fiduciary risks in the year ahead.
