Five Big Trends in Defined Contribution Plans for 2021
Holistic Financial Education
The pandemic has created a lot of pain for people. The CARES ACT made it easier for people to access their savings and many have dipped into their retirement savings to make it through the COVID crisis. People are hungry for good, objective financial education and advice and the workplace is a great place to provide it. Sponsors can start with their retirement plans. The best recordkeeper’s websites help participants not only with retirement savings but also with basic financial planning tasks such as creating an emergency savings account and managing debt including student loans. And streaming technologies like Zoom have made it much easier to conduct remote meetings.
Deaccumulation and Retirement Income
The SECURE Act requires recordkeepers to show what a participant’s account balance will be in terms of a monthly income stream. In addition, the Act now makes it easier for sponsors to add retirement income products to their plan and many asset managers are coming out with their own type of retirement income products including as part of a target date solution. Taken together, these steps will help participants target a well-defined retirement income stream while they are building their assets during their working years.
Back in 2018, Principal agreed to buy Wells Fargo’s book of recordkeeping clients. That same year The Newport Group acquired PNC’s business. In 2020 Mass Mutual sold its retirement business to Empower who also acquired Fifth Third’s and Truist’s (the merger of Sun Trust and BB&T) businesses. The upshot is that recordkeeper consolidation is a long-term trend in DC marketplace and we expect to see more of it. Consolidation is also happening the financial advisor space. The institutional retirement space is increasingly dominated by professional, ERISA-focused advisors and Pes firms are increasingly driving M&A activity because of size of the deals.
Environmental, Social and Governmental investing is continuing to the gain steam in the wealth management space. With the recent change in the administration and at DOL, we expect to see demand for ESG investment in investment lineups take off in the DC marketplace.
Pooled Employer Plans (PEPs) and Expanded Coverage
Roughly half of Americans do not have access to an employer-sponsored retirement plan. The Secure Act allowed small plan sponsors to band together under a PEP to offer a low-cost retirement plan. We expect smaller companies to use currently without access to a retirement plan to offer a low-cost plan to their workers.
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