Defined contribution plan sponsors have started to embrace ideas that until recently were anathema to the industry, such as mandatory saving and risk sharing, a new survey from Russell Investments has found. The poll was conducted during the firm’s recent annual institutional summit in New Orleans.
Of 86 plan sponsors and other attendees surveyed, close to 90% said that mandatory saving, either through compulsion or an “opt-out” approach, could help address the problem of inadequate savings for retirement. A majority of the respondents also indicated that the retirement industry should be looking to build a system that shares a greater percentage of risk between employers and employees. The poll’s main findings were published in a recent survey report from Russell, titled The Future of Retirement: Three big ideas that could reshape the U.S. retirement industry.
“I was a little bit surprised with the popularity of the idea of sharing risk,” said Bob Collie, Russell’s chief research strategist for institutional clients in the U.S., who conducted the survey. “Plan sponsors think it is fairer this way.”
Sponsors also appeared warm to the idea of shifting employees from plans sponsored by a single employer to plans representing much larger groups, namely multiple-employer plans. Specifically, 65% of respondents favored this proposition and only 23% were lukewarm.
Nevertheless, the industry seemed pessimistic about how many of these ideas could ever be achieved. For the mandatory savings proposal only about half of the respondents thought it would happen. Respondents’ reaction to the viability of risk-sharing was about the same. “In practice, [risk-sharing] is unlikely to happen,” Collie said. “The incentive to move back to something more in the middle [between DC and defined benefit] is not there.”
With the proper regulatory framework, though, some of these proposals might take off. Almost half of the responding sponsors are waiting for a regulatory framework that will remove serious obstacles from the system. Two of the biggest barriers, Collie says, are the requirements by the U.S. Department of Labor that businesses that sponsor multi-employer plan have some sort of connection, such as to belonging to the same industry sector. Also, the regulations need to be clarified with respect to what happens to a plan if one of the sponsoring employers fails the ERISA non-discrimination test.
The mandatory saving idea also demands a stronger legislative push. Illinois, Washington and Oregon have passed legislation to establish retirement savings plans, even for private-sector employees, without access to retirement savings at work (MMI, 7/14). “Conditions are ripe for that sort of legislation at state level,” Collie said. “Seeing that level of activity, it is clear that the retirement system is a top priority for many legislators.”
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