Operational Risk Is the Achilles’ Heel of DC Plans
Learn about a framework for managing it.
For retirement plans, investment risk and longevity risk tend to receive the most attention from the media and stakeholders alike. However, as defined contribution (DC) plans continue to grow in size and complexity, sponsors need to strengthen their focus on operational risk.
Managing operational risk matters. The potential consequences of failing to adequately address operational risk can be severe. Events, such as compliance failures, reporting errors and data breaches, may lead to sizeable losses and/or litigation and could threaten the tax-qualified status of the plan. Many experts believe that operational risk, more than any other risk category, is the leading cause of reputation risk.
Effective management of operational risk may lead to improved service quality, reduced costs, improved participant decision making and better compliance. Moreover, it can help to improve stakeholder confidence, which, in turn, may help to position the DC plan for continuously improved outcomes across key goals.