The past year saw some important new trends emerge for plan consultants’ work with their clients. Wealth Management asked several leading industry participants to share their insights on key developments in 2019.
Director & NA Intellectual Capital Leader
Benefits Advisory & Compliance
Willis Towers Watson
2019 saw many companies chasing Abbott Labs to develop a student loan assistance program for their employees. When Abbott Labs announced its innovative 401(k) offering in 2018, effectively allowing 401(k) matching contributions on either employee deferrals or student loan repayments, it set off a wave of interest among employers searching for ways to provide unique benefits to their employees. Interestingly, one of the biggest drivers has been the desire to attract and retain talented employees, many saddled with student loan debt, in a tight labor market. At least two other organizations announced similar programs this year.
In reaction to the widespread interest in 401(k) plan-integrated student loan assistance programs, the IRS and Treasury announced earlier this year that it was undertaking a guidance project to provide direction to employers eager to implement their own Abbott Labs-like program. While initially hoping for the guidance by year-end, it now looks more likely that its release will occur in the first quarter of 2020. We expect that the guidance will pave the way for many companies that have been waiting on the sidelines to move forward and adopt innovative programs of their own, propelling this feature into the mainstream.
Head of Service and Operations
Ascensus’ Retirement Division
Plan sponsors’ top concern continues to be driving positive outcomes for employees. This goes beyond plan features that make it easy to contribute to retirement (like automatic enrollment and automatic increase). Sponsors have come to realize that overall financial wellness is essential to ensuring that employees are happy, healthy and productive.
Security and service are also still top of mind for sponsors. Data protection, environmental monitoring and risk governance were the topics of many conversations. At the same time, sponsors wanted assurance that we could provide the coverage needed to run their plans while offering them high-level service that’s built on trust and a true understanding of their specific needs.
Senior partner of Investment Consulting
Key developments in 2019 were: 1) the material decline in interest rates; and 2) assisting clients to build and/or identify strategies that will provide resiliency in case of a recession and/or equity market downturn.
The 100 basis point or so decline in interest rates year-to-date through November across all types of fixed income securities bolstered returns for investors but caused interest-rate-sensitive liabilities to generally increase more rapidly, negatively impacting funded ratios in a year of strong equity returns. More importantly, the low-interest-rate environment presents a challenge for all investors going forward as their portfolio anchor will provide very little to no after-inflation expected return and may force investors to take more risk if they want to achieve their expected return targets after an extended run for risk assets.
Building portfolio resiliency and/or identifying current portfolio components that are expected to provide resiliency was a critical discussion we had and are having with institutional investors. Assets that provide income above investment-grade bonds and that are not high-yield bonds or bank loans are the focus. These high-income and/or potentially resilient strategies include real estate equity debt, infrastructure equity and debt, trade finance and asset-backed securities.
Institutional Retirement Income Council (IRIC)
Three trends continued to manifest in 2019 that affected retirement plan consultants and sponsors. First, the relentless bull market helped participants boost their retirement readiness and confidence. The latest EBRI study shows more than eight in 10 retirees are confident they will have enough money to live comfortably throughout retirement. The expansion of auto enrollment, auto increase, and auto reenrollment features in DC plans has created the highest level of retirement readiness from DC assets.
Second, the majority of plan participants invested in target-date funds, balance funds or a managed account due in large part to auto investing for automatically enrolled participants. Transfers and exchanges were at an all-time low as participants are passive in their investment engagement seemingly trusting the default options within their plan. Additionally, index funds, low-cost ETFs and institutionally priced funds continued to increase their share of DC assets.
Third, plan participants’ broadening view around financial well-being caused plan sponsors and consultants to broaden their plan portfolios and offerings, including the adoption of retirement income solutions. This is especially true for plan participants in their late 50s and early 60s with a focus on overall financial well-being and the growing need for additional retirement tier services for near retirees and retirees.
Head of Vanguard Strategic Retirement Consulting
There were three things that I think are most noteworthy. The first is we all are in this business to serve the participants and their retirement outcomes. So, if you think about it from their perspective, there were very positive market returns as of today, Nov. 20. Things can always change but through today there were very positive market returns for American workers who are in 401(k) plans, particularly if they were able to restrain their emotions during heightened volatility. But just to put a finer point on that, as of the close of the market yesterday, U.S. stocks were up 26% year to date, non-U.S. stocks up 17%, U.S. bonds up 8.6%, which is high for bonds, and international bonds up 8.1%. So, all the major asset classes not only had positive returns but, relative to historical norms, had positive returns. That was something we spoke about with plan sponsors but that’s also how the retirement system felt to participants, so that’s the first thing.
The second thing was a continuation of a trend of more plan sponsors adopting smart plan design. By that I mean the use of defaults, auto enrollment, auto increase of participant contributions and participants being defaulted into target-date funds. That wasn’t a new trend, but it was a continuation of a trend and a lot of us felt that this year it kind of tipped over. Instead of it being something that we spoke about with plan sponsors and plan sponsors debated whether to do it, it became much more that plan sponsors needed to justify why they weren’t setting up the plan this way. And, there’s more and more evidence that was discussed with plan sponsors this year that smart plan design and using defaults just conclusively solves the three big historical problems with retirement savers: Getting in the plan, saving enough in the plan and saving appropriately, and the smart plan design, of course, impacts all those things.
The last thing this year was around public policy. I think most would say this was a surprise because while retirement and retirement saving is certainly a very important thing, it’s not a very common part of the public policy agenda. It’s not a perennial part there and, yet, this year, we saw a major development both on the legislative side as well as the regulatory side. On the legislative side we saw the SECURE Act get passed in the House. Again, as of today, it’s still awaiting passage in the Senate, but it’s a meaningful piece of retirement legislation. And, on the regulatory side, the Department of Labor relatively recently released a proposed regulation on e-delivery of statements, creating a safe harbor for plan sponsors to default to e-delivery. That, of course, will lead to better retirement outcomes and vastly reduced expenses. That hasn’t been finalized yet, but that just shows you that the public policy realm from a retirement perspective was particularly active this year.