5 retirement plan innovations

1) Large plan sponsors will reduce and/or eliminate revenue sharing as much as possible

The practice of revenue sharing has received increasing scrutiny over the past few years, with organizations looking for a more equitable approach to paying for their retirement plan’s recordkeeping services. With rising popularity and shrinking recordkeeping margins, moving to an all-institutional fund lineup with zero revenue sharing does not require as large a per-head charge to participants as it would have even a few years ago. The major barrier for plan sponsors is that the majority of participants still believe their retirement plan is free; and moving to a zero revenue-sharing lineup dissolves this myth, potentially causing participant fallout.

2) More retirement readiness/financial wellness program implementation success stories

With plan sponsors and organizations feeling the effects of individuals unable to retire ‘on time,’ including increasing healthcare costs for an aging employee population and employee retention issues for those unable to advance, providing employees with the tools and education they need to successfully prepare for retirement is critical. The emphasis on breaking through and significantly moving the needle as it relates to retirement readiness and financial wellness is likely to be center stage for plan sponsors in 2016.

3) Recordkeepers will continue to do more with less

Not too long ago, the recordkeeping industry had a lot of room for improvement: there was a significant disconnect between fees and services, issues with technological infrastructure and difficulties with customer service were the norm rather than the exception. Rarely did a recordkeeper’s response to a request for proposal deliver all that the plan sponsor client desired. However, after much provider consolidation, it appears that only the strong are surviving. In 2016, it is expected that recordkeepers will successfully leverage scale, technology and other resources to offer the best value equations thus far, even for smaller plan sponsors.

4) Adoption of auto enrollment will decline in popularity

With an increasing number of plan sponsors recognizing that auto enrollment is not a panacea for what ails their retirement plan, it is likely that the seemingly unstoppable auto enrollment train will hit some debris on the tracks. Retirement plans often suffer from a lack of participant engagement in retirement outcomes, an issue that auto enrollment does nothing to address — as it actually takes advantage of participant inertia. With plan sponsors looking to optimize their retirement plans for employee outcomes, the popularity of auto enrollment may diminish somewhat.

5) 403(b) plan pricing will nearly catch up to that of 401(k)

From a recordkeeper’s perspective, it used to be that the 403(b) plans of non-profits were far less desirable than the 401(k) plans of their for-profit counterparts. When it came to 403(b) plans, bizarre regulatory provisions unique to such plans and limited purchasing power due to multiple providers rarely enabled recordkeepers to put their best foot forward from a pricing standpoint.

However, the environment has changed significantly (with the possible exception of public school districts). Single or dual recordkeeper plans are the most prevalent model by far, and 403(b) plans are now more similar to 401(k) plans from a regulatory standpoint than at any point in their history (incidentally, 403(b) plans predate 401(k) plans by several years). Thus, the gap between the two types of plans has narrowed, and by the end of 2016, the difference in plan pricing will be insignificant for plans of similar size and complexity.