Retirement redefined
Prudential offers blueprint for recasting DC plans

Did something happen on the way to your comfortable retirement?

If you're like most workers, that something was the market crash of 2008, which cost Americans approximately $1 trillion in retirement savings.

This focused new attention on the fact 401(k)s and other defined contribution (DC) plans contain a number of evolutionary "flaws," not the least of which is an inability to deliver during retirement a guaranteed stream of lifetime income. 

Christine Marcks, president of Prudential Retirement, thinks these gaps are understandable. After all, DC plans were originally designed as supplements to traditional pensions, not as replacements. But over the past 20 years or so, they have become the primary retirement-savings vehicle for American workers, and their shortcomings have been painfully exposed.

"It's become clear—especially over the past 18 months—that individuals are either not saving at all or not saving enough in their DC plans," Marcks says. "They're not increasing contribution rates or allocating assets appropriately, and they're not sufficiently protected from adverse market conditions. 

"We really need a new model for the design, management and administration of DC plans, one that delivers an effective answer to the retirement-savings crisis now plaguing American workers," she adds.

Prudential's latest report, "Redefining Defined Contribution Plans to Enhance Retirement Security," proposes such a solution. By integrating industry best practices and leveraging common features of traditional defined benefit (DB) pension plans—such as built-in risk protection and guaranteed income for life—Prudential's "Redefining Retirement" model offers a holistic and distinctive alternative to existing DC plan strategies.

Prudential's model focuses on four key elements that should be part of all future workplace-provided retirement programs:

1. Autopilot retirement planning for participants, providing an automated and pre-defined path from their first day of employment through their retirement to help them achieve their retirement-planning goals;

2. Built-in risk protection that helps mitigate fiduciary risk for plan sponsors, provides protection from market downturns for plan participants and helps ensure that participants receive a guaranteed stream of retirement income;

3. Streamlined plan operations that automate and reduce the cost of plan administration, making DC plans more attractive and affordable for small firms; and

4. Lifelong participant education and support through e-delivery and online tools.

"We believe 'Redefining Retirement' is the beginning of a broader, long-term shift in the structure of retirement programs, and we also believe that Prudential is one of only a few providers in the industry that can offer this kind of comprehensive solution to the systemic problems facing the U.S. retirement system," Marcks says.

"With this model, we're creating a 'glide path' for plan participants that carries them not only to retirement, but through retirement. We're also providing additional levels of fiduciary support and indemnification for plan sponsors."

Want more information on the research? Read "Redefining Defined Contribution Plans to Enhance Retirement Security." Want to talk to Christine Marcks? Contact Dawn Kelly.