What Do Plan Sponsors Think About DC Plans?

May 2025

Employers are the cornerstone of how Americans save for retirement. Employers choose to sponsor plans. They choose the service providers for those plans. They need to make sure that the proper rules, supports and guardrails are in place and that they have reliable, reputable entities guiding them. They are the face of the plan to employees, and they are on the hook for employee questions, complaints and potential litigious issues.

These plans represent enormous sums of money and, more importantly, security — or at least the hopes thereof — for millions of employee savers. For many, a defined contribution (DC) investment represents their largest financial investment.

They are a critical employee benefit for both employers and employees.

They are also targets for fraudsters and, from a different perspective, for legislators and regulators. It should be noted that the tax-deferred status of a DC investment represents wages that are not taxed as current income — so are not immediate income for the government. Roth contributions, of course, are post-tax and therefore do contribute to federal and state bottom lines in the form of the current income taxes they garner. And it's probably not a coincidence that, per SECURE, catch-up contributions on the part of the highly compensated must be made as Roth.

While the tax-deferred nature of DC plans helps plan participants, it reduces tax revenue for governments; this reduction makes the plans highly visible. Factoring in the importance they play in helping individuals save for retirement — which is the basis for many plan and participation mandates and state initiatives requiring employers to offer some sort of plan — we see an industry under intense scrutiny.

The federal government and many state governments are dipping their toes into the retirement pond, through regulation, legislation and coverage/enrollment mandates, but retirement saving in the U.S. is currently and primarily a function of employment. Even while several states mandate coverage, usually offering up a state-run possibility, employers themselves have strong feelings about how plans are best managed.

According to an early 2025 (not yet published) LIMRA survey of 1,000 DC plan sponsors, more than 8 of 10 DC plan sponsors (Figure 1) feel that they themselves — employers — are the best fit to manage workplace retirement plans. This is more than double the percentage who believe that state governments are best suited for plan management and three times the percentage who feel that the federal government is best qualified. In the case of both state and federal plan management, sponsors are more likely to disagree than to agree that plans are best managed by a governmental entity.

Despite pundits and commentary to the contrary, employers — and much of our industry — feel that our retirement system is doing a decent job. When asked to grade the employment-based retirement investment system, literally none gave it a failing grade, or “F,” and just 4 percent graded the system a “D.”  A quarter (26 percent) rated the system an “A,” with 6 percent bestowing an “A+.”  Half (51 percent) gave a grade of “B,” and 19 percent gave a “C,” resulting in a respectable report card from a major industry constituent, though it leaves room for improvement (Figure 2).

Further, nearly all plan sponsors agree that their plans are a necessary part of employees’ ability to plan for their futures, and three-quarters are of the opinion that without the plan, their employees would not be saving for retirement at all.

What is more, and relevant to the discussion of tax-qualified status adding to the savings appeal of these plans, sponsors also feel strongly that the ability to defer taxes is a powerful motivator for employees to save, with 83 percent of employers agreeing. Still more sponsors — 93 percent — agree that the plan is a necessary part of their employees’ ability to plan for the future.

Attempts to upend or even crack the foundations of our current employer-based, tax-deferred retirement savings system may do more harm than good. This is not to say that there’s no room for improvement. To date, while we’ve seen efforts or heard murmurings of changing the tax-deferred status of DC investments, legislative efforts are, for now, focused on expanding coverage and making it easier for employers to offer, and employees to invest in, DC plans.

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