Prescient Perspectives on the Road Ahead
A diverse group of retirement industry experts has weighed in on what the world of 2019 could look like — and while their view was relatively optimistic, in some respects it wasn’t as much change as you might think.
The vast majority of this panel of experts (including yours truly) believes that by 2019, more than half (55%) of plan sponsors will be using automatic enrollment. On the other hand, that’s not much beyond the 45.9% who do so today, nearly a decade after the Pension Protection Act of 2006 fueled the trend. More significant perhaps is that nearly three-quarters of that panel of experts thought that, by 2019 nearly half (45%) of plans will automatically enroll participants at a default contribution rate of 6% or more, up from 29% at present.
While 74% of the experts thought that 2019 would see 75% or more of the small private employer market (50-100 employees) offering defined contribution plan coverage, that’s just a 12 percentage point improvement over the level today.
Recordkeepers, take note: Two-thirds of the experts thought that the recordkeeper’s ability to render helpful advice to participants will become a large part of what sets recordkeepers apart. Moreover, 62% either strongly agreed (15%) or agreed (47%) that recordkeepers will price services to encourage the right plan sponsor and participant behaviors.
That said, consolidation will continue at a rapid pace both in the recordkeeping business and the advisory business, and the experts surveyed believed that the surviving recordkeeping firms will be those that diversify their revenue type within their retirement business.
By 2019, 71% of these experts anticipate that three-quarters of plan sponsors will have implemented fee revenue levelization strategies so that participant cost is independent of investment elections, almost tripling the number that experts had predicted for 2017. A similar number of plans will be deriving fees for participants as a combination of per-head and asset-based fees, experts predict.
And, with continued profitability and competitive pressures, some 64% of experts believe that by 2019 there will be fewer than 20 DC recordkeeping systems in the retirement plan industry.
Tough economic times during the Great Recession caused many companies to abandon their match to employee contributions, but many have clawed their way back to offering a match. Some plans looking to simplify their matching policy have chosen to match employee contributions just once per year. More than half of retirement plan experts say that the 9% of organizations that are currently matching just once per year will expand — but only to 15% — by 2019.
Almost two-thirds of these experts believe some retirement plans will have adopted a simplified array of fewer than six core investment options — each with a distinct asset allocation mix and glide path. More than half of experts foresee plan adoption of custom asset allocation models as a qualified default investment alternative (QDIA) over a target date or target risk series of funds.
‘More’ or Less
A series of questions didn’t ask for much specificity in terms of trends — just a sense of increase or decrease from the current status quo:
- Roughly two-thirds (64%) agreed that “more” plans will adopt a governance structure involving multiple committees or subcommittees (note, however, that more than a third were either neutral or disagreed with this notion).
- 40% strongly agreed (50% merely agreed) that “more” plans will rely on a third party to assume ERISA 3(38) and 3(16) fiduciary responsibility.
- Fewer than a quarter thought that “fewer” retirement plan committees will review investment options at periodic meetings.
- About 4 out of 10 said that retirement plan committees are “trending up” in size (number of committee members) — though just as many were neutral on this notion, and 18% disagreed.
- About half thought that, in addition to the plan administration committee and/or the plan investment committee (or subcommittee), “more” plans will create a plan operations committee to address operational questions such as payroll integration, transitions, plan mergers, partial plan terminations, and divestitures.
The experts had high hopes for actions by the Department of Labor (DOL) as well:
- 70% agree or strongly agree that DOL will expand IB 96-1 to extend to information about the distribution of account balances in a lifetime income stream (e.g., annuitization).
- 74% agree or strongly agree that DOL will have instituted safe harbors to facilitate the use of in-plan annuities.
- 85% agree or strongly agree the DOL will have issued safe harbor regulations for systematic e-delivery of plan communications.
- 84% agree or strongly agree that exclusive use of e-delivery will be allowed for 404(a)(5) notices.