DiMeo Schneider and Associates

The Retirement Tier:
The Natural Evolution of the Defined Contribution Plan
By: Steve Dufault, CIMA®, Defined Contribution Practice Leader, 
Senior Consultant
Defined contribution plans, more specifically, 401(k) plans, have become one of the primary savings options for Americans. The employers who sponsor these retirement plans are now trusted partners for employees. Such trust developed over many years as Plan Sponsors created valuable benefit programs by integrating health and wealth initiatives. With 76 million Baby Boomers approaching retirement or already retired, Sponsors migrating their plans from the single focus of a savings and wealth accumulation program to one that also provides tools and resources that assist employees in navigating the complexities of retirement is the natural progression of retirement plans. 

What Is the “Retirement Tier”?

For many years, the defined contribution marketplace focused on the standard three-tiered approach toward investments and solutions based on the participants’ level of engagement. Our intent is to discuss a new tier, proposed by the Defined Contribution Institutional Investment Association (DCIIA), known as the “retirement tier”. 

DCIIA has been instrumental in developing the retirement tier concept and encouraging its adoption in the defined contribution marketplace. As an early member of DCIIA, DiMeo Schneider has been actively involved in developing retirement income initiatives, including broadening the reach of the retirement tier.

The retirement tier is a conceptual framework that helps build a set of solutions for employees nearing, at, or in retirement. The retirement tier is composed of four main categories: 

1. Plan Design
2. Resources
3. Investment Products
4. Communication Strategy

Plan Design

A primary consideration for plan design is the ability to access savings with an increased level of flexibility, such as partial distributions and installment payments. While the vast majority of plans allow for lump-sum distributions, the Plan Sponsor Council of America reports that only approximately 55 percent of Plan Sponsors allow for partial distributions1. Providing this flexibility enables retirees to continue to benefit from the economies of scale in the plan’s asset base, thereby leveraging lower costs associated with the 401(k) plan’s institutional investment products. 


The next category to review when building the retirement tier is resources. In many cases, recordkeepers provide a broad product offering that may incorporate applicable tools for this tier. A Plan Sponsor could simply leverage these tools rather than engaging outside service providers. Examples of resources and tools include access to: 

• Retirement advisors
• Social security optimization tools
• Budget planning worksheets
• Emergency savings suggestions
• Education on the following topics: 

o Estate and tax planning
o Medicare
o Staying active
o And much more 

Investment Products

Investment products are another major category to address. As previously mentioned, employee needs are more nuanced as they approach retirement age. The more customized portfolios generated from a managed account service may be more attractive than off-the-shelf asset allocation funds (i.e., target date funds). In addition, by offering income-generating funds or products, the plan may better meet the needs of retired employees. 

Communication Strategy

Finally, bringing all these elements together into a cohesive communication strategy is key to the successful implementation of the retirement tier. Targeted communications to those nearing retirement should clearly explain the withdrawal flexibility, available resources and how new investment options may be incorporated into a holistic retirement strategy. 

Determining If the Retirement Tier Is Right for Your Organization

Overall, a Plan Sponsor may benefit from a retirement tier given the evolving needs of employees as they near retirement. More specifically, these employees need more individualized solutions and options available to them. 

When considering what to include in your retirement tier, you should conduct a needs analysis to evaluate the extent to which a retirement tier would benefit your population. As a tailored solution, a retirement tier is based on each Plan Sponsor’s unique goals, objectives and plan demographics.

The professionals at DiMeo Schneider & Associates, L.L.C. can assist with evaluating the pros and cons of developing a retirement tier. We encourage you to visit DCIIA.org to learn more about the retirement tier, including the six-part series of research white papers available here

For more information, please contact any of the professionals at DiMeo Schneider & Associates, L.L.C. 

The Defined Contribution Institutional Investment Association (DCIIA)

The Defined Contribution Institutional Investment Association (DCIIA) is a nonprofit association dedicated to enhancing the retirement security of America’s workers. It provides a forum for industry participants to enhance the defined contribution system, emphasizing access, innovation, best practices and institutional approaches, with the goal of improving financial security for America’s workers. DCIIA’s diverse group of members includes investment managers, consultants and advisors, law firms, recordkeepers, insurance companies, Plan Sponsors, and other thought leaders who are collectively committed to the best interests of Plan Sponsors. 

1Plan Sponsor Council of America’s Annual Survey of Profit Sharing and 401(k) Plans; 62nd Annual Survey

This report is intended for the exclusive use of clients or prospective clients of DiMeo Schneider & Associates, L.L.C. Content is privileged and confidential. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources which are believed though not guaranteed to be accurate. Information has been obtained from a variety of sources believed to be reliable though not independently verified. Past performance does not indicate future performance. This paper does not represent a specific investment recommendation. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice.

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