Like any well-designed wedding cake, the best-designed retirement plans also come in tiers, according to a series of six brief white papers published last month by the Defined Contribution Institutional Investment Association, headquartered in Washington, D.C.

The series sets forth the concept of a retirement tier with a range of retirement products, solutions, tools and services, all of which allow a defined contribution plan sponsor to broaden the plan’s goal from one focused entirely on savings to a broader theme that also accommodates and supports participants nearing, entering or already in retirement.

The association’s white papers, which originated with its Retirement Income Committee, highlight a retirement tier’s potential components, explore its benefits and challenges, and provide a road map for implementation that reflects a diverse array of industry experts’ perspectives and insights.

Robert Austin of Alight Solutions, providing the series’s overview in Paper No. 1, underscored a retirement plan’s primary goal of retirement income adequacy. He noted that the 401(k) system is evolving from a blueprint for accumulating assets to one with strategies for preserving and consuming them.

"Plan sponsors' decisions about their plans' distribution policies can play a critical role in their participants' retirement outcomes," he wrote for the association.

In Paper No. 2, Vidya Rajappa of American Century said that a plan sponsor can adopt plan design, communication and investment choices that do not require separated participants to sign up for a lifelong, full commitment by instead designing a retirement tier that requires a more modest commitment by participants. 

“It is important to debunk a myth that sometimes arises within the industry that a retirement tier—or, indeed, any strategy to help retiring plan participants—is a stark, complex, or all-or-nothing proposition,” Rajappa said. “This myth is based on the fallacy that a DC plan must either help participants (and their spouses) all the way through retirement or force all terminated participants out of the plan at the first available opportunity.”

By adjusting plan documents, Rajappa said, participants can stay in the plan after retirement and take partial distributions. After amending the plan document to offer participants more flexible access to their savings plan, over time, plan sponsors could evaluate other alternatives.

Rajappa said that plan sponsors interested in offering a more detailed retirement tier could add retirement income options in-plan, as well as out-of-plan, such as institutionally priced annuities or other insurance-based strategies, just by integrating them into the qualified default investment alternatives.

In Paper No. 3, Kathleen Beichert of Benetic answers the rhetorical question, “Why now?” Her response: Because those approaching retirement need help.

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