2020 was a record-breaking year for the markets. Following March lows as the pandemic emerged, the major indexes produced historic returns for investors by year-end. The market rally helped support 401(k) account balances too, with the Employee Benefit Research Institute reporting that the average balance for older workers was up 15.5% at year-end.
401(k)s continue to be the preferred retirement vehicle among savers, so these marked gains bode well for the nation’s retirement future. Our team recently introduced a dedicated 401(k) consulting practice where we help plan sponsors manage qualified and nonqualified retirement plans. We provide comprehensive solutions designed to the client’s goals by working closely with them to understand their needs and business culture, as well as how they operate and interact with their team. Our goal is to make it easier for plan sponsors to offer the benefit of 401(k)s to their employees, from assistance with plan design and administration to HR and payroll, employee education and benchmarking; while providing them with the support of GVA’s extensive network of financial professionals.
We are encouraging our plan sponsor partners to use 2020’s surprising success as a jumping-off point to continue improving their plans for participants. It’s important to understand the trends shaping the retirement landscape in order to optimize the plan. Here’s what our team is watching for our plan sponsor partners:
Regulatory changes make way for new opportunities in 401(k)s: The SECURE Act created an opportunity for small employers to expand their retirement benefits and gain access to more competitive service fees and offerings through pooled employer plans (PEPs). The Department of Labor (DOL) issued its final guidance in November and solidified the option for employers to participate in the new structure, allowing smaller plans to combine and receive better service at a lower cost. This is an emerging opportunity for plan sponsors to improve retirement benefits for their employees by leveraging a larger participant base and ultimately improving outcomes for those participants.
Retirement income comes back into focus: For the last several decades, the 401(k) industry has focused on the accumulation phase of retirement planning. Yet this approach resulted in an inadequate focus on retirement income and its ability to support lifestyle. The Center for Retirement Research predicts nearly half of Americans will not be able to maintain their current lifestyle after they stop working, underscoring a stark reality for most aspiring retirees. A shift in focus among plan sponsors and plan advisers could significantly impact the future of participants.
New demand for alternatives: Within the last year, we have seen a surge of interest in alternative investments, made possible by new provisions — like last summer’s DOL guidance on allowing private equity investments in qualified plans. Particularly as plan sponsors understand alternatives better, there will be a push for larger plans to add collective investment trusts and private equity investments to qualified plans on the corporate side, and we expect investment menus to include new options for investors this year.
An integration of health and wealth: Employers have seen how employee health directly relates to overall productivity and the focus is now extending to financial wellness too, as it becomes more important to both plan sponsors and participants. Sixty-two percent of employers report feeling “extremely responsible” for the financial wellness of their employees, according to Bank of America’s annual workplace benefits report. Many employers offer some degree of financial wellness within their plan, but we expect to see an increase in the types of benefits provided. Additionally, among employers who have not previously offered a plan, we believe many will introduce one this year in an effort to improve overall outcomes.
Plan design features remain at the forefront: Plan design has always been a key component of employer-sponsored retirement plans. Automatic features have become popular in recent years and remain important in plan adoption. Small plans are implementing unique employer-level contribution strategies with different levels of profit sharing for key employees or those nearing retirement.
We see a common theme emerging among these trends: Plan participants are calling for more support in meeting their retirement goals. It is up to plan sponsors to uncover new ways to provide it. Reviewing key trends and responding to changing tides within the 401(k) space is one of the best ways plan sponsors can meet these evolving needs.
This information is not intended as authoritative guidance or tax or legal advice.