Ten key trends to assess the present, forecast the future of 401(k) plans
By Steve Smith and Laura White
October 1, 2008
In the ever-changing retirement plans landscape, it can be challenging to keep pace with current trends in 401(k) plans, let alone try to predict what lies ahead. …
Collectively, a broad range of industry experts concur that the future looks bright. …
Specifically, there are 10 key trends that will affect 401(k) plan sponsors and participants over the next five years.
Plan sponsor trends
1. Vendor consolidation
Vendor consolidation will allow plan sponsors to realize lower costs through economies of scale, reduction of infrastructure expenses and more efficient use of technology. ...
2. Plan consolidation and total retirement outsourcing
Consolidation continues to gain ground at the plan level, whether in the form of combining multiple DC plans into one; terminating or freezing DB plans and enhancing the DC plan; or using one vendor to manage multiple types of plans, such as DB, DC, and nonqualified deferred compensation plans. ...
Looking ahead to 2013, plan consolidation is expected to continue, while the decline of DB pension plans will slow.
3. Buyer behavior
... While fee-for-service consulting will prevail with due diligence activity reaching an all-time high, provider turnover will likely be reduced due to a greater focus on establishing long-term relationships between plan sponsors and providers. As a result, vendor searches are expected to drop to historically low levels.
4. Impact of fiduciary duties on plan management
Another key trend is increasing plan sponsor focus on fiduciary responsibilities, with experts projecting that the effects of the Pension Protection Act will continue well into the next decade. …
5. Investment shifts
Fiduciary responsibility regarding investment selection and monitoring is increasing, a trend expected to intensify in the next five years….
Participant trends
6. Automatic enrollment
Thanks in large part to the increased use of automatic enrollment, participation rates are on the rise, and by 2013, three-fourths of plan sponsors will adopt this approach.
A related phenomenon is the rapid growth of other automatic features designed to help participants manage their accounts, including automatic deferral escalation and automatic investing alternatives, such as target date funds and other age-based investment solutions.
Five years from now, experts forecast that about one-half of all plan sponsors will adopt automatic account management features.
7. Increasing electronic service delivery
Electronic delivery of retirement plan services to participants will increase, with Web usage overtaking voice response systems in the next five years. ...
Interactivity will also become more commonplace, according to experts, who anticipate increased use of online chat and live video access to contact center representatives.
8. Greater employee responsibility leads to more attractive plans
… [Workers] will demand plans that include immediate employer contributions, immediate vesting, multilingual communications and global integration of benefits for multinational employers.
9. Rebirth of annuities
... The rebirth of annuities and development of "in-plan annuities" is a response to the need to retire employees with an acceptable standard of living and an income stream they won't outlive. ...
10. Baby boomer retirement
... As a result of this generation staying in the workforce longer, employers will need to adapt to phased retirement.
The trend to semiretirement raises a number of possibilities which can not yet be firmly predicted, including: delayed commencement age for minimum distributions; increased minimum age for penalty-free withdrawals; delayed age for receiving full or early Social Security benefits; and the diversion of employer contributions to support health care plans.
While these and other issues will be on the table for the next presidential administration and industry experts to address, plan sponsors can look ahead with confidence that the future of 401(k) plans will continue to be promising. Although the challenges associated with these plans will continue to rise over the next five years, the maturity, efficiencies and growing expertise of all parties involved with 401(k) plans will allow plan sponsors and participants to be better prepared for retirement.
Steve Smith is corporate plans product leader and vice president of sales for Diversified Investment Advisors. Laura White, CEBS, is a vice president, marketing at Diversified Investment Advisors. She is an author of Diversified's new report, "Prescience 2013: Expert Opinions on the Future of Retirement Plans."
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