US/CANADA - Employees' rates of contribution to employer-sponsored defined contribution (DC) schemes in North America fall well below estimates of the savings levels required for a comfortable retirement, a new study has found.
The Mercer Investment Consulting (Mercer IC) survey found that in both the US and Canada, DC plans are becoming the primary vehicle for funding employees’ retirement savings but the firm says results show employers need to take steps to improve plans.
“Employees bear the investment risk in a defined contribution plan but it’s up to the plan sponsor to offer competitive investment options and communicate the plan effectively so that employees can take full advantage,” says Perry Williams, Atlanta-based Mercer senior consultant and an author of the study.
The survey report, North American Defined Contribution Plans: Where are they headed?, examined the steps US and Canadian employers are taking to address challenging issues like participation, contribution levels, investment options and conversion to pension income.
According to Mercer IC, contribution rates came up short in both the US and Canada with one-fourth of the plans reporting average participant contribution of 4% of salary or less.
The company also found plan sponsors in both countries are working to improve investment performance and risk management including the use of “pre-mixed” funds such as target risk and target year.
“The prevalence of these funds has more than doubled in the US, now offered by 63% of plan sponsors, compared to 25% in 2000,” Mercer IC said in a release.
“Premixed funds are less prevalent in Canada, where they are offered by 45% of plan sponsors.”
Another key finding was that plan sponsors seek to hold down plan costs with fee benchmarking becoming a standard industry practice in addition to negotiated fee reductions and other measures.
The web-based survey was conducted in April 2004 with results based on the 434 responses.
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