The Next DC Frontier An Outcomes-Based Approach to DC Plan Management.doc

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The Next DC Frontier: An es-Based Approach to DC Plan Management
Lori Lucas
Defined contribution (DC) plan management is an industry wide workforce management issue, yet employers traditionally approach it like a game of “hot potato”: Whoever ends up with the older worker who is not able to retire is stuck with the problem. Instead of treating employees’ difficulties in achieving retirement e adequacy as a problem to be “kicked down the street,” employers should shift their approach to DC plan management. This article discusses the benefits of shifting away from a traditional transactional-based approach toward an es-based one, and how this shift applies to automatic plan features, target-date fund selection and other plan issues. Finally, the author describes considerations and trade-offs employers should take into account when deciding where their own plan approach belongs along the transactional versus es-based spectrum.
In his book Predictably Irrational, MIT behavioral economist Dan Ariely makes the case that money is not always the most effective motivator. He cites an experiment on social versus transactional relationships1 in which participants were seated in front of puter and asked to use their mouse to drag circles from the left side of the screen as many times as possible onto squares on the right side of the screen as possible within a five-minute period. Each group was given a different motivation for the task. Some were awarded $5 plete the experiment and others much smaller sums, including as little as 10￠(all transactional incentives). Another group was asked to do the experiment as a “favor” to the experimenters, with no mention of money at all—in other words, as part of a social relationship. Of all the groups, the one that appeared
to be most motivated and productive was the last one, where no money was involved, but the request for a favor was the incentive. That group dragged as many as 67 more circles onto the squares