A recent survey of more than 550 US employers by WTW has exposed an uncomfortable truth at the centre of defined contribution plan governance: a large majority of plan sponsors have no formal definition of what retirement readiness means for their workforce.

“You can’t prove that your plan works if you haven’t defined what working actually means,” said Chris West, senior managing director and DC strategy leader at WTW. “Employers are facing a retirement readiness gap and that pressure is mounting for them to prove that their plan works,” West added, underscoring the main theme from the survey.

The issue resonates north of the border for Canadian plan sponsors too. According to C.D. Howe research earlier this year, 9.1 million Canadian employees do not have any workplace retirement plan. The authors of that report argue coverage is at the heart of retirement readiness.

WTW’s survey identified that many employers are relying on blunt, aggregated data rather than segmented analysis, administrative burden is crowding out strategic thinking and the transition from accumulation to decumulation remains a weak point across the DC landscape.

Measuring retirement readiness varies
Among the employers that do attempt to measure readiness, approaches vary. While some lean on participation rates, others point to accumulated balances or use age as a proxy – a holdover, West notes, from defined benefit plan conventions. Still others fall back on gut instinct.

“Employer support is really less developed at this important stage of an individual in their retirement journey. Planning tools and flexible withdrawals are widely available while more comprehensive retirement income solutions remain less common,” she said.

“As a plan fiduciary, you have a lot of fiduciary responsibilities. You’ve got day-to-day responsibilities, you’ve got audit responsibilities, you’ve got required reporting responsibilities. And what we heard [from the survey] is that those activities are holding plan sponsors back from being able to be strategic within their plan,” said West, adding that routine compliance work leaves little room for plan sponsors to define what retirement readiness actually looks like for their workforce.

“Especially when it comes to moving the accumulating balance in [members’] retirement plan to actually converting that to some sort of retirement income perspective,” she added.

Read more @benefitsandpensionsmonitor