UK - Widespread weaknesses in the management of defined contribution (DC) schemes could leave firms open to legal disputes, Mercer Human Resource Consulting warns.
Its survey found that over three quarters of UK firms failed to set goals and objectives for their DC plans. This, it said, meant their schemes were less likely to be successful.
The report, A Survey of Defined Contribution Retirement Plans 2002, added that this management failure could mean many schemes will fall far short of member expectations, leaving thousands of workers with insufficient income when they retire.
Mercer Human Resource Consulting European partner Jonathan Gainsford said: “The vast majority of defined benefit plans have a rigorous management programme in place.
“But many defined contribution plans, while fulfilling the regulatory standards, fall short of meeting the expectations of workers and sponsors.”
He warned: “Failure to have an effective management regime could leave plan sponsors exposed to legal challenge and damage their reputation.”
The report also found that half of DC plan sponsors review the adequacy of benefits less than every three years or not at all and that a similar disparity of practice was evident in the frequency of investment reviews.
While over 90% of respondents reviewed their investment performance annually, only 30% looked at qualitative factors, which are likely to drive future performance in a scheme.
Gainsford said: “With the downturn in investment markets, organisations should be reviewing their investment managers’ strengths and weaknesses and the projected adequacy of benefits to ensure their plans continue to be on track.”
The Mercer survey covered over 1655 organisations with DC plans across 10 countries, representing some seven million members and over US$270bn of assets.
In the UK the consultant surveyed 378 schemes.
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