Overcoming retirement plan challenges with expanded outsourcing
5 retirement plan challenges: Unleashing innovative solutions designed for success
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Juggling the administrative burdens of a 401(k)HR departments often struggle with the complexities of managing 401(k) plans, while plan sponsors face the responsibility of ensuring regulatory compliance to avoid penalties and legal issues. This is especially challenging for small and mid-sized organizations with limited resources.
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Navigating fiduciary riskManaging a retirement plan involves navigating fiduciary, compliance, and investment risks, which can have significant financial and legal implications for both plan sponsors and participants.
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Limited investment options
Closing the savings gap requires more than just contributions; it necessitates offering plan features and a diversified investment lineup that caters to different segments of the workforce. However, smaller plans often encounter difficulties in accessing top-tier investment options due to their limited bargaining power and smaller asset bases. As a result, they may find themselves with less appealing investment menus that fail to meet the needs of plan participants.
By fully outsourcing their retirement plans to a 3(38) investment management fiduciary that has established relationships with fund managers and access to high-quality investment options, plan sponsors can potentially overcome the challenge of elevating their investment offerings.
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Support for plan participants
Employees often face difficulties in understanding complex investment options and effectively managing their retirement savings. Without proper support, plan sponsors may encounter challenges and compliance issues if they are unable to provide resources to help employees achieve successful retirement outcomes.
The right outsourcing provider will give employees access to participant education and retirement readiness tools, creating a comprehensive experience that integrates financial wellness, retirement savings tools, financial education and planning resources. This support is essential in helping employees to make informed decisions and stay aligned with their retirement goal of building a more secure financial future.
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Pressure to lower fees and costs — for both companies and participants
Excessive fees in retirement plans are attracting litigation risk and negative media attention, even for mid-sized and smaller organizations. Plan sponsors must diligently monitor and negotiate with service providers to ensure reasonable and transparent fees.
By partnering with an outsourcing provider, companies can leverage economies of scale, which often result in reduced administrative and investment fees. This is because they no longer need to maintain in-house staff for regulatory compliance or administrative tasks. Outsourcing may also reduce costs for participants by potentially providing access to lower-cost investment options and lower overall fees, helping participants to maximize their retirement savings.
Mercer’s Outsourcing Solutions
In 2017 and 2021, we launched Mercer Wise 401(k) and Mercer Wise PEP, respectively. These outsourced solutions aim to improve participant outcomes while reducing administrative duties and fiduciary risk for plan sponsors.
Mercer Wise 401(k) utilizes a group employer plan structure, where each sponsor maintains its own plan but delegates 3(16) administration and 3(38) investment management services to Mercer as a 402(a) fiduciary.
Mercer Wise PEP offers the same benefits as Mercer Wise 401(k), but in a PEP, Mercer serves as the Pooled Plan Provider (PPP). Instead of maintaining separate plans, employers adopt a plan under one Master Trust Agreement. The PEP structure may also help to avoid a plan audit, as a selection of underlying plans is tested each year, minimizing complexity.
Both Mercer Wise 401(k) and Mercer Wise PEP consolidate recordkeeping with Empower, one of the leading US providers of retirement recordkeeping services. This relationship enables participants to access continuous platform improvements, from personalized experiences to participant education and retirement readiness tools, all aimed at driving better outcomes and keeping participants on track with their retirement goals.
Enhanced administrative support is the primary reason clients joined Mercer Wise, with recordkeeping capabilities as a close second.¹
Why Mercer for expanded outsourcing?
Our Mercer Wise solutions may appear similar to those of others when it comes to outsourcing. However, a deeper look uncovers fundamental distinctions that may result in different experiences.
Participant experience
Mercer Wise has its own dedicated in-house call center, staffed with trained and knowledgeable employees. This eliminates the need to navigate multiple vendors or recordkeepers, saving time and potentially providing a better experience for your plan participants.
79% of Mercer Wise clients agree that the Mercer Wise platform has positively impacted the overall experience of their 401(k) plan participants.1,2
Risk management
When undergoing a major change such as transitioning to an outsourcing solution, it is vital to choose a partner who will help manage fiduciary risk. Mercer Wise clients can trust our dedicated team to help mitigate fiduciary risk and share the latest information on legislative updates, regulatory changes and governance recommendations that could impact your plan, your business and your reputation.
100% of Mercer Wise clients feel their company is better protected from litigation risks associated with their 401(k) plan with Mercer acting as the named fiduciary.1,2
Smooth transition
When making the decision to switch to an outsourcing solution, it is essential to choose a partner with hands-on experience in executing smooth transitions. Mercer has been serving as the named fiduciary for retirement plans and successfully transitioning clients into expanded outsourcing solutions since 2016.
79% of Mercer Wise clients state transitioning to the Mercer Wise platform was a smooth and effective process.1,2
Enhanced administrative support
With Mercer Wise, the employer has just two fiduciary responsibilities: selecting and monitoring the plan service providers and submitting accurate and timely payroll contributions. All other functions of running the plan, from selecting and monitoring investment options to annual compliance reviews and approving participant transactions, are handled by Mercer.
89% of Mercer Wise clients agree that the Mercer Wise platform has improved the overall governance of their company’s 401(k) plan, while 74% of Mercer Wise clients agree that the platform has alleviated the administrative responsibilities associated with managing their company’s 401(k) plan.1,2
In conclusion
In addition to the typical workforce challenges, companies and HR teams also need to adapt to today’s uncertain, slower-growth economic outlook. This may involve measures like hiring freezes, contract renegotiations, travel restrictions, and staff reductions. However, the fiduciary responsibility to manage the company's retirement plan remains. Mercer offers expanded outsourcing solutions that are collaborative, supportive, and flexible, tailored to balance a company's goals, resources, and the long-term needs of its workforce.
1All responses are sourced from the Mercer Wise Client Survey obtained on 07/15/2024. Responses provided in the testimonials were given by current clients. It is important to note that these clients did not receive any form of compensation for providing their testimonials. Additionally, Mercer has not identified any material conflicts of interest that would affect the clients' responses. The responses provided may not be representative or typical of all Mercer clients. If you have any further inquiries or require additional information, please do not hesitate to contact us. For a comprehensive list of questions & responses pertaining to these survey results, please visit our website.
2Answered strongly agree or agree on the Mercer Wise client survey. Please reference footnote #2 for more information on client survey results.