DOL’s Big Changes For Protecting Retirees? Progressive DC Plans Are Way Ahead

DOL’s Big Changes for Protecting Retirees? Progressive DC Plans Are Way Ahead by Richard Davies, Alliance Bernstein

The US Department of Labor (DOL) is only a few weeks away from issuing its final enhanced fiduciary rules. And they’re going to change the way Americans manage their retirement savings.

Tension is building within the financial advisor community. And whether people like them or not, these new rules will certainly change business practices. IRA rollovers are at the center of the debate, as the DOL is poised to extend ERISA-like fiduciary provisions into the rollover market—a source of significant profit for the retail investment community. The DOL’s aim will be to address potential abuses when retirees move from an institutional to a retail world including aggressive marketing practices, conflicted advice and excessive fees.

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Sure, these rules are new, but concerns over the treatment of employees about to retire is nothing new within the plan sponsor community. For a small percentage of large plans, taking steps to protect former employees is sort of old news. They’ve been at it for some time.

Six Steps Progressive DC Plans Use to Stay Ahead of the Pack

  1. Some large plan sponsors have been modifying plan documents to allow participants to stay in their plans post retirement, and to allow partial distributions. This lets retirees benefit from institutional pricing for investment and administrative services. And mind you, keeping more assets in a plan helps hold fees down, which is good for working participants too.
  2. They’re offering financial wellness programs to help participants plan their retirement spending.
  3. They’re paying closer attention to their recordkeeper’s contract language concerning any marketing to departing employees. Some large plans are prohibiting marketing contact completely.
  4. Many of these large plan sponsors have added managed withdrawal programs to help participants who lack the discipline or ability to plan their own distributions.
  5. A few plans are embedding annuities into their target-date designs—as options or even as the default—to provide true guaranteed income for life.
  6. The boldest plans are encouraging participants to move IRA rollover assets from their previous employers into their current DC plan. So instead of having their rollover assets sitting with mutual fund companies and advisory firms, participants can consolidate all their qualified retirement assets within their DC plan.

Most importantly, these progressive plan sponsors have broken from the historical mindset that former employees are to be ushered out of their DC plans as soon as possible. They are making a commitment to their employees for a lifetime. Will these plan sponsors change America’s entire approach to retirement savings? Maybe not, but it will be interesting to watch.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

“Target date” in a fund’s name refers to the approximate year when a plan participant expects to retire and begin withdrawing from his or her account. Target-date funds gradually adjust their asset allocation, lowering risk as a participant nears retirement. Investments in target-date funds are not guaranteed against loss of principal at any time, and account values can be more or less than the original amount invested—including at the time of the fund’s target date. Also, investing in target-date funds does not guarantee sufficient income in retirement.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.