Why Isn’t Defined Contribution… Better?

Turner Consulting’s Elvin Turner on getting America’s defined contribution back on track.

CIO-Sept-2015-Story-Int-Turner-Jasu-Hu.jpg Art by Jasu Hu After you’ve done it all in defined contribution—mutual fund management, big bank product design, annuity overhauls, fiduciary legal eagle—what’s left? Retirement? Not until the rest of America’s defined contribution (DC) participants are on track. Elvin Turner, now president of Turner Consulting, debates big ideas with CIO.

CIO : There seems to be so much low-hanging fruit in the DC system that just… keeps hanging there. Academics, plan sponsors, even regulators support features like guaranteed lifetime income options for DC retirees, but no one implements because of liability risk. Is the absence of a first-mover advantage for sponsors killing innovation in defined contribution?

Turner: I was with you until your last statement: I do think there is a first-mover advantage. Some bold companies are out there truly innovating, but in general sponsors are looking over their shoulders for the Department of Labor.

CIOs have to put on their fiduciary hat. And they’ve done so. Broadly, this is a sophisticated group. To put it in shorthand, they are not the ‘dumb’ money whose notions of investing are totally disconnected from reality. Plan sponsors are constantly probing providers’ motives and decisions to make sure any decision is a prudent one for a fiduciary. And frankly, that’s why they’re the hardest folks to sell to. “What is the third-order motive behind this product?” “Am I setting myself up for a lawsuit in 2025?” That’s a totally different mindset than retail or almost any other industry. And it makes CIOs tough to sell to. Rightly so.

CIO :   You mentioned exceptions to this prevailing conservatism. Who are they and what are they doing differently?

Turner: Some of the big Silicon Valley tech companies would be in this category. These firms can be very demanding and tough places to work apparently, but they think of the entire lifestyle of their participants, not just a narrow sliver of their benefits package. They are thinking beyond a 401(k) balance and savings rate: they’re considering health care, work-from-home policies, parental leave. Should you put employees on a bus to the gym after work? They can see things in participants that employers focused just on retirement accounts cannot. These employers are in the best position to connect that slippery term ‘retirement outcomes’ to their employees’ lifestyles in retirement. The notion is simple: Help employees retire and be able to afford the same house and the same lifestyle as they had while in the workforce. If employers achieve that, their employees will be happy.

CIO : Not to be crass, but why does it matter? Once an employee retires, does a company have any (financial) reason to actually care if they’re happy?

Turner: Happy people don’t sue you. Happy people tell other people, who may become your clients, customers, staff, shareholders. Think back to the holistic view these bold companies take: Someone who’s going to be happy in retirement is going to have been happy while they’re working for you.

Furthermore, influential employees don’t work on a Thursday and become retirees on Friday. They become consultants for their employer—doing the same job, just 25 hours a week. We’re increasingly entering that world where the old rules of thumb for a career lifecycle are becoming obsolete, but we still design plans around them. Think about mandatory retirement ages, for example: Doesn’t that sound crazy now? Imagine a Home Depot with a mandatory retirement age. They’d have to fire half their clerks.