By Jane Meacham
While acknowledging that maintaining traditional defined benefit (DB) pensions has become either too expensive or too burdensome, several Fortune 500 company retirement plan sponsors would like to replicate for their defined contribution (DC) plans some of the efficiencies from their DB plans, according to a new survey report from BNY Mellon.
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The market value of DC plans like 401(k)s is projected to be more than $8.5 trillion by 2018, outweighing their DB counterparts by $1.3 trillion at that point, financial services data analysis firm Cerulli Associates has estimated.
With that shift in mind, BNY Mellon, a global money manager and plan service provider, interviewed plan sponsors at 20 “mega-market” U.S. corporations—defined as managing DC assets of at least $1 billion—about their plans’ outlook over the next few years. In a May report titled “The DC Plan of the Future: DB Principles for the DC Generation,” the large plan sponsors saw the best chances to make DC plans behave more like institutionalized pensions for their participants by taking these three steps:
- Using institutional investment strategies for DC plans;
- Unbundling investment and service fees; and
- Ensuring that participant education and automation work together.
These priorities reflect the most common historical shortcomings associated with DC plans versus DB plans: higher costs; limited access to alternative investments, leading to inability to increase returns and reduce risk through diversification; and uncertain final benefits for retirees.