Government defined contribution plans have become a cornerstone of public employee retirement security. Many sponsors have already established oversight structures, including committees, charters and investment policies, to fulfill their fiduciary obligations. However, as the landscape evolves, so must the governance processes that underpin these plans. The following strategies offer sponsors effective approaches to strengthen and modernize their oversight structures, helping to ensure robust stewardship practices with the goal of improved outcomes for participants.
Assess the Governing Body
Even established committees benefit from periodic self-assessment. Consider the following enhancements:
- Committee Composition: Evaluate whether the current mix of finance, HR and investment professionals provides the necessary expertise. Consider adding independent members or rotating seats to bring fresh perspectives.
- Charter Review: Update the committee charter regularly to reflect changes in regulations, plan complexity or organizational priorities.
- Decision-Making Processes: Adopt clear protocols for voting, conflict-of-interest disclosures and escalation of complex issues.
Consider open dialogue with your peers to assist in benchmarking your committee’s structure and processes against peer organizations and industry standards to identify gaps and opportunities for improvement.
Strengthen Plan Design Oversight
Oversight bodies should not only monitor but proactively drive plan design enhancements. Key actions include:
- Simplicity and Accessibility: Regularly review the enrollment process, vendor landscape and fund menu for unnecessary complexity. Streamline where possible to boost participation.
- Participant Feedback: Implement mechanisms (e.g., surveys, focus groups) to gather participant input on plan features and barriers to engagement.
- Loan and Distribution Policies: Periodically assess loan provisions and distribution options to help ensure they align with participant needs and best practices.
Investment Menu Governance
When creating a more effective investment menu, it is important to avoid excessive options, often referred to as “menu bloat.” By leveraging behavioral finance principles, committees can identify the ideal number and types of investment choices that best serve participants. Many Plan Sponsors have observed that the majority of participants tend to select target date funds, which suggests a preference for simplicity. As a result, focusing on a streamlined menu with a limited set of core offerings can provide meaningful choices for those seeking customization, while maintaining clarity and accessibility for all.
In addition to menu design, committees should implement a documented and repeatable process for manager selection, providing a balanced approach between active and passive investment strategies. Establishing clear criteria for ongoing fund evaluation enables consistent performance monitoring and facilitates timely replacement of underperforming funds. This disciplined oversight supports the plan’s objectives and helps maintain a high standard of investment options for participants.
Fee Transparency and Benchmarking
Shift from only carrying out annual fee reviews to adopting a process that is both more flexible and open. Fee disclosures should be comprehensive, requiring recordkeepers and investment providers to present detailed, line-item breakdowns. It is important to understand all sources of revenue sharing and any indirect compensation received by the recordkeeper. For those utilizing proprietary investments, inquire about the potential impact on pricing if these options were replaced with non-proprietary alternatives, ensuring all costs are transparent and justified. Regular benchmarking of all fees, including recordkeeping, investment and administrative costs, against industry standards should be conducted at least annually. When comparing fees, consider the value of services provided, such as frequency of in-person education meetings and custom communications. Additionally, establish a disciplined schedule for Requests for Proposal (RFPs) to verify competitive pricing and encourage innovation in service offerings.
Strategic Participant Communications
Oversight bodies should validate the communication strategy used with your participants is driving results. While many focus on strong communications during plan changes, sponsors should stive to offer their participants robust assistance throughout the year from their vendors including:
- Message Testing: Pilot communications with small groups to gauge reactions and refine messaging. Receive feedback regarding other areas of information that participants are interested in, such as budgeting, capital market reviews or additional savings strategies.
- Multi-Channel Approach: Use digital, print and in-person channels to reach all participant segments. If possible, all shifts should have access to in-person education support.
- Stakeholder Engagement: In unionized environments, involve union representatives early in the process to build trust and facilitate effective communication.
Institutionalizing Ongoing Oversight
To monitor robust ongoing oversight of the defined contribution plans, governing bodies should adopt a formal governance structure that schedules regular reviews of:
- Plan Design and Investment Menu
- Fee Structures
- Participant Outcomes
- Regulatory and Legislative Developments
Depending on the size of your plans and available resources, this review process can be conducted quarterly, using a calendar to review one of these topics each meeting, semi-annually or annually.
Furthermore, committee members should receive ongoing training on fiduciary duties, industry trends and emerging risks. In this ever-changing environment, it is essential for your governing body to be aware of any new regulatory items or risks that impact your plan(s).
The Value in Continuous Review
Even well-established oversight structures require ongoing refinement to remain effective. By embracing a culture of continuous improvement, leveraging data and prioritizing transparency and communication, government DC Plan Sponsors can help ensure their governance frameworks deliver lasting value for participants. Regular assessment has the potential to not only strengthen plan integrity but it may also help identify opportunities to enhance outcomes for all stakeholders.
Please contact any of the professionals at Fiducient Advisors learn more about how our time-tested and structured process can assist you in creating the optimal plan for your employees.
The information contained herein is confidential and the dissemination or distribution to any other person without the prior approval of Fiducient Advisors is strictly prohibited. Information has been obtained from sources believed to be reliable, though not independently verified. Any forecasts are hypothetical and represent future expectations and not actual return volatilities and correlations will differ from forecasts. This report does not represent a specific investment recommendation. The opinions and analysis expressed herein are based on Fiducient Advisor research and professional experience and are expressed as of the date of this report. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Past performance does not indicate future performance and there is risk of loss.
