PLANADVISER - September/October 2017 - 24

trendspotting
More
Robust Use
Of AutoFeatures
DCIIA
says existing tools
can be leveraged further
IN a new report, " Design Matters, "
the Defined Contribution Institutional
Investment Association (DCIIA)
analyzed what is working in defined
contribution (DC) plans and whether
additional legislation could strengthen
these factors further. DCIIA concludes
that plans have the tools they need to
get workers prepared for retirement-
they just need to use them more
vigorously.
The Pension Protection Act of 2006
(PPA) was a watershed moment for
defined contribution plans and has
helped change them dramatically,
DCIIA wrote. Before the PPA, 19% of
DC plans used automatic enrollment,
and today 60% do. Pre-PPA, 9% of
plans used automatic escalation, and
today 80% do. Stable value and money
market funds were the most common
qualified default investment alternative
(QDIA), and today 85.5% of plans
use target-date funds for the QDIA.
" The difference between retirement
savings for workers in plans
TALKING POINT
The World of Alts
The world's 100 largest alternative
asset managers saw their assets rise
10% in 2016 to $4 trillion.
Source: Willis Towers Watson, Global Alternatives Survey 2017
24 | planadviser.com september-october 2017 Art by Martin Gee
with automatic features and those
whose plans do not have auto-features
is dramatic, " DCIIA wrote. " The DC
system is already equipped with
many of the tools it needs to drive
improved retirement outcomes. Wider
and more consistent adoption of these
tools, including automatic features
and adequate initial savings rates,
could make a significant difference for
today's workers. "
DCIIA estimates
that
in plans
without automatic features, a person
retiring at age 66 would have five
times his final salary in savings,
whereas a person in a plan with autofeatures
would retire with 6.66 times
his final salary saved-more than a
30% difference.
According to DCIIA,
the median
initial deferral rate for DC plans is an
inadequate 3%, and there is a need
for more " robust defaults. " The organization
believes that existing legislation
is sufficient to support higher
deferral rates and escalation up to
15%. It also estimates that when plans
use an initial deferral rate of 6% and
automatic escalation up to a 10%
cap, participants could retire with 7.9
times final salary. If it is increased to
a 15% cap, participants could retire
with eight times their final salary.
Further, DCIIA stressed the importance
of plans limiting loans, hardship
withdrawals and cash-outs, as doing
so could increase participants' holdings
by as much as 10%. Today, 86.6%
of plans permit participants to borrow
against their DC plan account, with
45.6% allowing more than one loan at
a time-a definite problem, as many
participants default on the loans upon
job termination. DCIIA estimates that
when a plan optimizes auto-enrollment
with no leakage, a participant
could retire with 8.54 times his final
salary. -Lee Barney
http://www.planadviser.com
PLANADVISER - September/October 2017

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