As defined contribution (DC) plans continue to evolve, planning sponsors face increasing complexity in managing retirement benefits. With $12.5 trillion assets (third quarter 2024) and one-third of US retirement assets, DC Plan is taking on a significant responsibility to ensure strong financial results for participants1. In 2025, planning sponsors should focus on optimizing investment strategies, reducing costs, and improving retirement preparations to enhance participant education.
Top priorities for the 2025 DC Plan include key areas such as target date fund selection, fee transparency, investment lineup evaluation, and precedence in regulatory and litigation trends.
Targeting the target date fund (TDFS)
Ministry of Labor's Guidance, Goal Date Retirement Fund – ERISA Plan Trustee Tips Overview of TDF Selection Best Practices2. Important takeaways include:
- Establish a process for selecting and comparing TDFs and for regular reviews
- Understanding the underlying investments and glide paths of TDFS
- TDFS Fees and Investment Cost Review
- Get all the information available in your review and decision-making process
- Documenting the process
- Development of effective employee communications.
Implicitly have three important points to consider in this guidance: First, as with any investment process, it is important to understand the purpose of your investment. It is to help your own group of employees invest in retirement. Second, we analyze the characteristics of the workforce by collecting demographics, investment behavior trends – commonly seen in reports created by record managers – and other workforce data. Finally, we will establish plan sponsor goals on plans and overall investment beliefs that will serve as a guide when evaluating different TDFs. To make careful investment decisions, these factors must facilitate analysis and identify the right TDF for your employees.
Understanding investment fees and stock classes
You can see the situation where plan sponsors experience efforts to find a good investment strategy and choose a suboptimal investment vehicle.
For example, instead of using zero, Plan Sponsor or its advisors are mutually exclusive that includes revenue shares paid to the advisor on the cost ratio or that the Record Keeper has paid or collected to credit for that fee, rather than using zero. You may choose a fund's stock class. Revenue sharing class. Otherwise, it may be eligible for collective mutual fund (CIT) vehicles plans with lower expense ratios than the mutual fund version of the investment strategy (meeting the minimum investment threshold). In many cases, these choices or monitoring lead to planning participants paying higher investment and record-keeping fees than if the plan sponsor optimized their investment vehicle selection.
Planning sponsors are encouraged to consider the impact on participants in the current mutual fund equity class, if not zero, and whether the plan qualifies for the same CIT strategy. Plan sponsors provide greater fee transparency than plans that utilize revenue-sharing stock classes, and often reduce overall fees, so if applicable, they will be in zero-revenue share classes. We recommend using mutual funds or collective mutual funds.
Evaluation of investment lineup structure
The routine investment reviews of most committees follow a similar format. A look at the economy and capital markets followed by a review of the performance and risk indicators of the investment menu. Changes will be discussed if there is funding for monitoring or if exchange is required. Regular reviews of planning fiduciaries are expected, but we recommend supplementing regular reviews of the investment lineup structure. This means whether it is implemented in investment categories (Figure 1) and active or passive management. If the labor demographic changes in meaningful ways, we recommend reviewing this type at least three years or earlier.
Figure 1: General investment structure.
Figure 1 shows the general investment lineup structure. To assess the appropriateness of the lineup structure, plan sponsors should start by plotting existing investment menus using the columns shown. This visualization can facilitate discussion of whether the current structure is appropriate or whether the investment category should be changed. Discussion factors include participant group investment knowledge, age, demographics, and the degree of population of retirees in the planning.
Provides comprehensive financial education resources
In 2024 Financial Health in Workplace Survey, employees reported spending at least three hours worrying about their personal finances. 68% say financial stress has a negative impact on mental health. And three of the four employers realized that financial stress for workers would have a negative impact on workplace operations.3.
We have seen firsthand how financial wellness benefits can help employees improve their financial health and reduce these challenges. Traditional group meetings have played a significant historical role, but especially for the labor force where the majority of the population is not on the desk, the number of plan sponsors and their employees look for individual one-on-one meetings. There is an increase in the meaning of being. With a financial educator. These private meetings allow employees to have a candid conversation about their own financial challenges.
Examining the structure and responsibility of the committee
Employment trends from “great resignation” to “large stays” and “large remodeling” indicate today's workforce mobility. These changes will also have a negative impact on the company's retirement planning committee. The reasons can range from changing positions to resigning or resigning from a company.
The committee should return to basics in 2025 by:
- Document the structure and responsibility of the committee
- Build an onboarding education checklist for new committee members
- Maintain the calendar structure of trustee continuing education
- Investment Policy Statement, Executive Summary, Investment Reports to ensure that your fiduciary files are up to date
Monitoring litigation and regulatory trends
At the end of 2025, there is a possibility of a new tax law due to major provisions in the 2017 Tax Cuts and Employment Act. Tax Resignation Program changes can be accompanied by tax laws, so it is important for plan sponsors to stay up to date with potential changes.
From a litigation perspective, two key trends shaped in 2024: planning and usage of forfeiture assets.
Planned fees remain the focus of perennials. Has the Committee fulfilled its fiduciary duty to monitor planning costs to be reasonable for the services provided? It is important to note that this topic covers both vendor expenses such as recordkeeping and advisor expenses, as well as investment management expenses such as investment manager selection and stock classes used.
The current wave of lawsuits over the use of forfeiture assets is a new phenomenon. The lawsuit is whether plans sponsors are permitted to use forfeiture assets to reduce employer contributions, or whether they are limited to paying permitted vendor fees or distributing funds to participant accounts. It focuses on.
As the likelihood of change and the rise in litigation, Plan Sponsors should work with advisors to stay in line with the 2025 regulations and other trends in litigation.
Planning sponsors play a pivotal role in shaping the economic future for millions of employees. Prioritizing investment optimization, cost-efficiency, governance, and participant education can help improve retirement outcomes and reduce the risk of fiduciaries. As market conditions, labor demographics and regulatory environments evolve, continuous assessment and strategic decision-making to ensure that DC plans are effective, competitive and align with participants' needs is the key. By focusing on these six priorities, Plan Sponsors can promote meaningful impacts from 2025 onwards.
Disclosure
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