Thursday, May 20, 2010

10 Trends That Are Changing the Shape of Workplace Benefits

Change is a reality of life, and establishing and maintaining benefit programs that are competitive and distinctive requires an awareness of trends in the marketplace, in the population, in the legislative and regulatory worlds, and in the needs of the workers you hope to attract and retain.

While product development and enhancements certainly can play a role, there are also the overarching issues that drive and shape those developments. Here are 10 of which you should be aware.

1 Sandwich “Spread”?

Much has been written about the impact of the retirement of the Baby Boomers, the so-called Silver Tsunami. … Indeed, the Boomers increasingly find themselves with a new labeling—the “sandwich” generation—in which they are not only focused on their own financial concerns, but those of their parents and children as well. This may give participants longer to save for retirement (and less time to spend in retirement), providing those still-meager accumulations a much needed cushioning, and it also may ameliorate some of the nascent concerns about talent transitions, but it’s not like that was part of “the plan.”

2 The “To Versus Through” Debate

Target-date funds have long offered an apparent simplicity of design and implementation that have made them appealing to plan sponsors and plan participants alike, a unique combination that allowed participants to do the “right” thing (letting professionals manage their money and rebalance it on a regular basis) while, for the very most part, doing nothing at all. Ditto plan sponsors, …

Of course, the 2008 market brought to light vast differences in the philosophies underpinning these designs in terms of asset allocation and glide path (in fairness, those were in evidence in 2006/2007 when more-conservative models were ridiculed for their lagging returns). Much of that difference was explained later as a function of whether the glide path was designed to take the investor to the anticipated retirement date—or past it (ostensibly until death).

The debate is not yet resolved, nor perhaps can (or should) it be. Still, ahead of changes on the regulatory front, fund manufacturers appear to be making a concerted effort to be clearer about those assumptions; and, if that does not make for an easier decision, it nonetheless makes it more obvious that a “decision” must be made.

3 The Match “Catch”

One of the more troubling trends of the past year was an apparent uptick in the number of employers cutting or suspending their 401(k) match. …

… Perhaps workers no longer will take such things for granted because, after all, “free” money really isn’t.

4 Share Alikes?

While company-stock-related lawsuits still seem to be the most common, that initial series of revenue-sharing suits is still “out there.” For the very most part, the plaintiffs have not fared well, but two widely publicized cases—one a $16.5 million settlement by Caterpillar, and a second involving Wal-Mart, where last December the 8th U.S. Circuit Court of Appeals found triable issues of fact in the case—are likely to keep plan fiduciaries “jumpy.”…

5 “Tell” Tales

…[Beginning] with the 2009 plan-year filings, the Labor Department has broadly expanded the requirements for reporting compensation earned by plan service providers on Schedule C of the Form 5500 to explicitly require the reporting of both “direct” and “indirect” compensation earned by plan service providers. It is clear that the DoL views compliance with the Schedule C reporting requirements as part of a fiduciary’s obligation to evaluate the reasonableness of a service provider’s total compensation—at the same time that it stands to gain a better ability to use this data, which is now also to be filed electronically.

6 Pension Penchants

While many continue to talk about the wisdom of modifying defined contribution designs to more closely resemble the better attributes of their pension predecessors, trillions of dollars (and future benefits) still reside in those traditional defined benefit plans. … [These] programs are responding in a variety of creative ways: some outsourcing more, others less, some taking a more active stance in asset allocation, others opting for a stronger focus on liabilities. However, regardless, most are asking for—and by most accounts, receiving—fresh insights and input from the marketplace.

7 The End in Mind

For years, the retirement plan industry has focused on trying to help participants save as much as they could—all the while acknowledging that the real challenge was likely to be helping them live on that accumulated savings. As it turns out, a new generation of products has emerged that not only will help them do that, but also will help them begin making those investments/preparations while they are still in that accumulation “phase.”

Issues in product design (or perceptions about issues in product design) remain, but those gaps are closing (including the gap in perceptions), and the prospects for future market turmoil seem likely to keep these offerings high on plan sponsor radar screens. Also, let’s not forget that the DoL has been asking for information on “arrangements that provide income after retiring.”

8 Conflict Ed?

… Earlier this year, the DoL took a step back from the position it took in the final regulations on the subject put together … in 2008 before being halted, and then withdrawn last November… The new proposed regulations largely seem to restore the status quo in favor of level-fee advice only. …

9 Executive “Order”

The 2008 elections brought in … new leadership at various agencies that have a large impact on retirement plans. That has already brought about shifts in direction … while the financial crisis has reinforced the need for better disclosures on offerings like target-date funds.

10 Health Care, Reformed?

By most accounts, much of the “oxygen” in Washington for the past year has been sucked up (out?) by health-care talk and proposals. With a bill now signed, employers can begin to focus on what that means for their programs—and their workers. …

Nevin E. Adams