DC plan member education increasingly important: report
BY Staff | August 5, 2020
Defined contribution plan members saw a bounce-back in equity markets in the second quarter of 2020, boosting their gross income replacement ratios from the lows of the first quarter, according to Eckler Ltd.’s latest capital accumulation plan income tracker report.
A typical male DC plan member retiring at age 65 at the end of June would have seen his gross income replacement ratio rise to 54.5 per cent, from the all-time low it hit of 53.1 per cent in March, the report said. And the typical female DC member saw hers grow to 53 per cent from 51.6 per cent at the end of 2020’s first quarter.
This dramatic swing between quarters demonstrated the importance of impressing upon DC members that they shouldn’t overreact in times of market stress, the report said. A hypothetical DC plan member who moved from a 2020 target-date fund appropriate for their upcoming retirement date into a money market fund at the end of March would have locked in a two per cent reduction in their income replacement rate.
Another problematic instance of plan member behaviour has been members investing in retirement or income funds when they’re still many years away from their retirement, as opposed to investing in more age-appropriate vehicles, the report said.
“As a plan sponsor, helping your DC members align their retirement objectives with the appropriate investment choices can have a significant impact on their outcomes – and, if members delay retirement because they can’t afford it, your workforce planning as well,” the report noted. “As we enter into our collective “new normal,” finding ways to engage and educate your DC plan members has become increasingly important.”