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Defined Contribution Plans: Challenges and Opportunities for Plan Sponsors

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Defined Contribution Plans: Challenges and Opportunitiesfor Plan Sponsors

American workers rely on their employers to provide a way to generate retirement income beyond their Social Security earnings. Many employers still offer traditional defined benefit (DB) pension plans. A growing majority, however, have replaced DB plans with account-based defined contribution (DC) plans. Virtually everyone acknowledges that the basic DC plan design is flawed. Yet as a society with low private savings and a fraying Social Security system, we count on this imperfect structure to serve as a retirement security bulwark. Workers and society both need the employer-sponsored retirement system to function well. Enhancing DC plan design therefore becomes critical.

Defined Contribution Plans: Challenges and Opportunities for Plan Sponsors offers guidance to plan sponsors interested in better understanding the primary issues confronting DC plans. We wrote this book from the viewpoint of the plan sponsor seeking to improve the DC system, and it follows five major themes: the plan participant, the plan sponsor, plan design, investments and investment managers, and asset decumulation in retirement.

We present the material conversationally from a high-level perspective. We have not sought to write an encyclopedia on DC plans but rather focus on the basic features of well-run plans. We address key challenges facing DC plans and offer associated design and policy recommendations for plan sponsors and other interested parties to consider. Plan design improvements almost certainly will be incremental, rather than sweeping top-down changes mandated by regulators. Plan sponsors individually will make the important decisions that have lasting consequences for participants and for society. Our objective is to spark interest among sponsors, encouraging them to carry out additional research and take action. We believe the DC system will be strengthened by informed sponsors advocating for and implementing thoughtful strategic changes to their plans.

About the Authors

Jeffrey Bailey
Jeffery V. Bailey CFA
Kurt Winkelmann
Kurt D. Winkelmann

Kurt Winkelmann has over 30 years of experience in investments and pension-related issues. He is a co-founder and CEO of Navega Strategies, LLC, a quantitative investment research firm. He was a Senior Fellow at the Heller Hurwicz Economics Institute (University of Minnesota), where he spearheaded the Institute’s pension policy initiative. Before founding Navega, Kurt was Managing Director and Global Head of Research at MSCI, Inc. Prior to MSCI, he was a Managing Director at Goldman Sachs, where he led the Global Investment Strategies group in the Investment Management Division. He has written extensively on asset allocation and risk management themes. He was an advisor to the Monetary Authority of Singapore, a board member of the Alberta Investment Management Company, an advisor to the British Coal Staff Superannuation Scheme, a Director of the University of Minnesota Foundation Investment Advisors, and a Trustee of the University of Minnesota Foundation. He chairs the Advisory Board for the Heller Hurwicz Economics Institute. He received his Ph.D. and M.A. in Economics from the University of Minnesota, and his B.A. from Macalester College (double major in Mathematics and Economics).