Over the past 20 years, Defined Contribution (DC) plans have seen unprecedented growth. Today, in fact, most Americans who receive retirement benefits through work are offered a DC plan as the cornerstone of their retirement program. Despite their popularity, however, DC plans have not generated significant balances for most participants.

In fact, industry statistics consistently reveal that there are large numbers of plan participants who are not building the necessary assets to provide themselves with a secure retirement. With Secure RetirementSM, DC plan service providers can help sponsors better meet the needs of these at-risk participants. The first step is to realize that most of the common features in a DC plan-large numbers of mutual funds, company stock, investment education that focuses on wealth accumulation-do not do much to help typical participants feel comfortable with the plan and to take appropriate action. They also do not address the unique needs of older participants, whose accounts frequently hold the largest share of plan assets.

Plan sponsors can address the needs of at-risk participants by focusing on straightforward ideas, namely:
  • Use plan design techniques that harness natural participant behaviors and leverage lessons from behavioral finance,
  • Emphasize asset allocation and ease of execution with options that include lifestyle funds rather than an exhaustive selection of investment options, and include lifetime income options that help participants focus on outcomes and mitigate risks. DC service providers can also help participants directly by:
  • Educating them on retirement income issues, not just wealth accumulation,
  • Helping them implement and maintain a risk appropriate investment strategy,
  • Acknowledging the limitations of communication and education programs and employing the lessons of behavioral finance,
  • Developing products and tools to illustrate the importance of a "paycheck" in retirement, and
  • Providing education and advice on how to secure income at retirement.