4 retirement trends for 2014
December 30, 2013 4:01 PM
1. Addressing the solvency of Social Security
Expect Social Security to be in the news more in 2014, says Chad Parks, CEO and founder of The Online 401(k). Its going to be one of those things that perhaps gets put into tax reform if tax reform goes anywhere in 2014, he says. As of now, trustees forecast that by 2033 there will be a 23% reduction in benefits payable across the board, Parks points out. Potential solutions to the problem of making the system solvent include a cost of living adjustment, raising or removing the current $113,600 earnings cap, or raising the Social Security tax by 1.33% for employers and employees alike, he adds.
Election year freeze
However, despite the importance of addressing Social Security, Parks and others dont believe much will happen legislatively this year, due to the November elections. I do think we are probably racing toward the traditional election year paralysis, says Neil Smith, EVP, strategic business support services at Ascensus.
In that vein, Parks believes there will be real discussions on the tax-preferred status of retirement savings plans which currently cost the Treasury around $160 billion a year but policymakers will not do something that might get them thrown out of office, he says. Such discussions include lowering the amount people can save per year or phasing out the tax deductibility after a certain rate. However, adds Parks, Thats a very short-sighted solution from Washington to their short-term income needs. Theyre not thinking about the big picture, what that would do to the incentives and the motivation for people to save for retirement.
In that vein, Parks believes there will be real discussions on the tax-preferred status of retirement savings plans which currently cost the Treasury around $160 billion a year but policymakers will not do something that might get them thrown out of office, he says. Such discussions include lowering the amount people can save per year or phasing out the tax deductibility after a certain rate. However, adds Parks, Thats a very short-sighted solution from Washington to their short-term income needs. Theyre not thinking about the big picture, what that would do to the incentives and the motivation for people to save for retirement.
Improving participant outcomes
Those employers that have not done so already will continue to reinstate the employer match into plans that removed the match during the recession, predicts Pete Ravani, senior retirement plan consultant for CBIZ Retirement Plan Services. They are looking at the retirement plan now as an attraction and retention tool; we are seeing that return, he says. As a result, there is going to be a corresponding focus on improving participant outcomes so that employees can get more out of their retirement plans.
Smith agrees: The key trend in our industry today has a lot to do with helping to improve participant outcomes. This will manifest in 2014 with a focus on optimizing plan design for qualified plans through increased auto-contributions the ideal being a 10% contribution rate and moving more employees into professionally managed accounts, such as target-date funds, Smith adds.
Smith agrees: The key trend in our industry today has a lot to do with helping to improve participant outcomes. This will manifest in 2014 with a focus on optimizing plan design for qualified plans through increased auto-contributions the ideal being a 10% contribution rate and moving more employees into professionally managed accounts, such as target-date funds, Smith adds.
Fiduciary definition
Although delayed until at least the summer, look for a decision on the definition of fiduciary in 2014 as well, the experts predict. Phyllis Borzi, assistant secretary for employee benefits security at the DOL has a long road ahead of her, however, say Parks, Ravani and Smith. The government wants to broaden the definition, but many wire houses are fighting back against the potential for increased liability, they say.
If the DOL changes the definition of fiduciary it certainly will change the dynamics of some of the services employers are receiving from financial professionals that they work with today, says Smith. He is most concerned about the SEC and DOL each having separate definitions of fiduciary. Lets make it consistent so that people know what theyre doing and theyre not caught between two different regulatory entitys views about what they should be doing, Smith concludes.
If the DOL changes the definition of fiduciary it certainly will change the dynamics of some of the services employers are receiving from financial professionals that they work with today, says Smith. He is most concerned about the SEC and DOL each having separate definitions of fiduciary. Lets make it consistent so that people know what theyre doing and theyre not caught between two different regulatory entitys views about what they should be doing, Smith concludes.
