What does next year look like for retirement plan sponsors and participants? Heres an early call on what many experts expect to see:
1. Simplify my DC plan. A number of studies have indicated that 401(k) plan participants are comfortable with plans that have features guiding their participation and reducing their decision-making. Its no surprise that most busy participants would rather have experts making decisions for them about saving and investing. As a result, expect auto-enrollment, auto-escalation of contributions, limitations on loans and withdrawals and other retirement readiness plan design features to continue to spread throughout 401(k) land.
2. TDF me ASAP. Many retirement plan experts believe that most retirement plan participants belong in a target-date fund or some other managed account option. Expect the use of TDFs to continue to flourish with more plan sponsors re-enrolling all plan participants in TDFs each year. Auto re-enrollment is a winner from a fiduciary risk reduction perspective and also helps participants invest more effectively.
3. Lets try outcomes. An important goal of the proposed retirement income projections regulations is to show participants that they wont have enough to live on when retired if they continue existing saving patterns. Will this incent participants to save more? At this time no one is certain; however, what is known for sure is that we will receive guidance from the Department of Labor about how to share retirement income projections. Expect to review, discuss and possibly implement retirement income projections into your 401(k) plan in 2014.
4. Retirement readiness. Throughout all initiatives in 2014 the spirit of retirement readiness will dominate. Accepted as gospel by plan participants and plan sponsors, retirement-ready ideas have evolved into retirement-ready policies which hopefully result in retirement-ready employees.
5. From cost reduction to monitoring. Most retirement plan sponsors have done a good job of managing the costs associated with their 401(k) plan. Motivated by regulation 408(b)(2), plan sponsors have embraced fee transparency, cut costs, dumped expensive funds and changed providers, squeezing just about all of the juice out of the cost-reduction orange. A major driver of plan sponsor activity the past few years, expect cost reduction to be replaced with an emphasis on cost monitoring and fiduciary compliance.
As you construct your performance plan for 2014, consider how these retirement plan trends will impact your initiatives.
Robert C. Lawton is president of Lawton Retirement Plan Consultants, LLC a Registered Investment Advisory firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at bob@lawtonrpc.com or 414.828.4015.
