Since their introduction over 30 years ago, 401(k) plans have evolved into one of the leading retirement savings vehicles for American workers. Skepticism about Social Security is widespread, with 70% of workers surveyed by the Employee Benefits Research Institute for its annual retirement confidence survey saying they are "not too" or "not at all" confident that Social Security will continue to provide benefits of at least equal value to the benefits retirees receive today.
As for industry themes, increased fee transparency, a renewed interest in fiduciary obligations and unstable financial markets are just a few of the many issues that have affected 401(k) plan sponsors this year.
Ed Lynch, managing director and chief retirement officer with Dietz & Lynch Capital, sees an emerging focus on the effectiveness of plans to deal with retirement readiness. Years of experience with target-date funds, behavioral finance, auto-enrollment and auto-escalation have given the industry a broader picture of employees' retirement readiness, and so Lynch surmises that over the next three to five years there will be an increasing emphasis on higher deferral rates, managed accounts and model portfolios.
"There aren't necessarily cookie-cutter approaches anymore," he says.
It's a sentiment echoed by Michael P. Kiley, founder and CEO of Plan Administrators Inc. "The industry is recognizing that 401(k)s can't be sold out of a briefcase anymore," he says, adding that he believes exchange-traded funds - often derided out of fear they will turn employees into day traders - will feature more prominently in the 401(k) plans of the future.
"Target-date funds are a great idea that needed to mature," he notes. "You can create the same sort of outcome using ETFs, and it's actually really cheap to bring the program in."
In fact, when new fee disclosure rules hit the street next year, Kiley believes there will be renewed interest in ETFs. (For more on prepping investors for understanding the enhanced fee disclosures, read "No free lunch" in the June 15 EBN.)
Connie Certusi, general manager of small business solutions with Sage, a business management software and services supplier, believes new fee disclosure rules will enable small business owners to compare 401(k) plan offerings in a consistent manner, making it more competitive for them to offer the plans to their employees. She, too, sees the 401(k) industry moving away from a focus on products to more of a focus on retirement income adequacy.
This year's 401(k) investment update, like the president's annual State of the Union address, is designed to outline the condition of the nation's 401(k) industry. It contains charts and data on a number of retirement and investment topics from a variety of sources, including EBRI, the SPARK Institute and investment firms.
Use the information to help you determine the state of your own 401(k) plan and how it aligns with your HR goals and overall business strategy.
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