Edition

DC Corner: For Such a Time as This

By Robert J. Reiskytl

Retirement Section News, June 2022

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A few years ago, the SOA Retirement Section Council created a Defined Contribution (DC) Initiative. Since that time the initiative has grown and branched into sub teams as we focus our efforts for the future. This article, the first of a series published here as the “DC Corner” of Retirement Section News, provides helpful information about the DC Initiative, inviting you to increase your knowledge of and engagement with DC-related topics in the future.

Why DC? Why Now?

Many retirement plan actuaries focus mainly on the important complexities associated with defined benefit (DB) plan funding, accounting, de-risking, and other issues. At the same time, most or all retirement systems or plans we serve also include at least one defined contribution arrangement, including corporate, not-for-profit, and governmental DC plans. Today, U.S. employers sponsor over 600,000 individual 401(k) plans. According to Alight’s “2021 Trends and Experience in Defined Contribution Plans,” 92 percent of employers say their DC plan is the primary employer-sponsored plan, up from 56 percent in 2001. Many expect the total pool of DB plan assets to plateau or decline, both in terms of dollars and share of the total U.S. retirement market, while the dollars and market share for DC plans continues to rise.

Rather than the “perfect storm” of recent history which led to many DB plans being underfunded, DB plans may soon face “sunny beach” conditions conducive to plan termination. Even as this article was written, the rate of inflation reached a 40-year high, with some predicting a future increase of DB plan terminations if de-risked pension assets align with decreasing termination liabilities associated with rising discount rates. After a DB plan is terminated, the employers and systems sponsoring those plans will no longer require actuarial services for those plans. The writing is on the wall—now is the time for retirement plan actuaries to increase their attention on DC plans and retirement systems.

Survey Results

While interest in DC topics is growing, most retirement plan actuaries don’t currently spend much time on DC topics. Results of the recent survey conducted by the SOA Retirement Section show respondents spend 64 percent of their time on DB, 17 percent on DC, and 19 percent on other topics (such as Social Security and retiree medical plans). When asked to “list any topics that you would be interested in seeing the Retirement Section increase its focus on and provide more content,” about one-quarter of the topics noted were DC-related, and among these, two-thirds focused on lifetime income solutions and drawdown solutions for DC plans. Respondents noted they are spending time on the following topics (listed in decreasing order of prevalence):

  • plan design,
  • retirement income adequacy,
  • lifetime income,
  • cash balance/combination plans, and
  • nondiscrimination testing.

While some actuaries spend larger portions of their time on DC topics, most do not. In future surveys we hope to learn more about DC topics of interest among actuaries, in order to better meet your needs.

DC Initiative Mission

The mission of the SOA DC initiative includes supporting and enhancing actuaries’ ability to design, manage, administer, and consult on all facets of DC plans. Here is the specific wording of the mission:

“Expand the continuing education, communications, and research of the Retirement Section (Community) to support actuaries providing services related to defined contribution retirement plans offered to employees. Support and enhance actuaries' abilities to design, manage, administer, and consult on all facets of defined contribution plans, and promote awareness of these abilities both within and outside the profession.”

Watch for further information here in the DC Corner, along with sessions at the upcoming SOA ImpACT Conference, webinars, research and other learning opportunities to increase awareness and knowledge of DC topics. Members of the DC Initiative have knowledge, enthusiasm and drive to help all of us in the recognition of the work actuaries do every day with DC plans, and to discuss and share research and project work that is continually improving DC plan efficiency and outcomes.

Next Steps

It is important to understand that many of these improvements will benefit all plan participants, but might provide even more help for people of different ethnic backgrounds. For more information, please consider reading the Aging and Retirement Issues for People of Different Races and Ethnicities—Essay Collection that the SOA’s Aging and Retirement Committee recently sponsored. The collection can be found here.

Stay tuned in the months ahead. An actuary’s technical skills and knowledge align extremely well with the emerging focus on DC for the retirement plans and systems we serve—we were trained “for such a time as this.” If you would like to learn more, or to join the SOA DC Initiative, please contact the co-chairs: Dan Cassidy dcassidy@promanageplan.com and Rob Reiskytl rob.reiskytl@aon.com.

Robert J. Reiskytl, FSA, FCA, has more than 35 years of retirement and broader human resources consulting experience. A principal at Aon, Rob focuses on retirement plan strategy and design, retirement income adequacy, financial wellbeing and the Aon Pooled Employer Plan. He is a frequent speaker on issues related to DC plans and related topics.