No one has a crystal ball, but it’s still possible to make well-informed forecasts about the retirement plan market.
We asked several leading industry participants to share their thoughts on potential developments that plan consultants should monitor in 2020.
Rick Irace
Head of service and operations
Ascensus’ Retirement Division
As with any new year, 2020 will bring its share of regulatory updates and changes. Plan consultants would do well to keep up with the latest issuances from the Department of Labor, the Securities and Exchange Commission and other government agencies. And don’t forget that 2020 is a presidential election year. Whether the result is that the current administration remains in place or new leadership is voted into office, it’ll be interesting to see what—if any—changes to the retirement plan landscape are discussed.
Advanced analytics will continue to gain prominence among both plan sponsors and service providers. Potential uses include forecasting retention, gauging plan effectiveness, expanding data points and improving services. Ascensus uses custom-built predictive analytics to continuously assess how well we’re serving our plan sponsor clients. This allows us to proactively consult with our clients, financial advisors and TPA partners to ensure their plans stay on track.
Plan consultants should also be prepared to field more questions from sponsors about fiduciary responsibilities. In particular, sponsors will likely want to discuss programs that offer expanded 3(16) fiduciary capabilities that allow for direct supervision and management of certain administrative plan duties (such as plan document maintenance and loan administration).
Russ Ivinjack
Senior partner of investment consulting
Aon
The possibility of negative interest rates and the growing need for retirement income solutions in defined contribution (DC) plans are 2020’s most important developments to monitor.
Negative interest rates, once thought impossible, would have a profound effect on all U.S. investors. The impact would be acutely felt in DC and defined benefit (DB) plans. In DC plans, investors in stable value funds (SVF) would bear the brunt of the changes. Investors in SVFs rely on a constant $1 NAV and modest income yield. Negative interest rates might lead to the dissolution of SVFs and/or fundamental changes in how they operate. For DB plans, negative interest rates could translate to ballooning present values of liabilities with underhedged DB plans experiencing growing deficits. Consultants should have active discussions with DB plan sponsors about the importance of hedging interest rate risk.
Retirement income continues to be a key topic, given low interest rates, an aging workforce and a growing retiree population. Offering a retirement income tier, including annuities in-plan and/or out-of-plan, and embedding benefit-responsive annuities in custom target-date funds are critical discussions to be having with DC plan sponsors in 2020.
Bob Melia
Executive director
Institutional Retirement Income Council
We expect more plan sponsors will support, if not strengthen, their efforts to maintain assets in their DC plans. Recent market run-ups have masked the fact the DC industry has had more outflows than contribution inflows over the past three years. Seeing negative outflows is causing sponsors, consultants and record-keepers to reexamine the prospects of actively trying to keep assets in their plans after participants retire or otherwise leave the employ of the sponsor.
We also expect a growing number of plan sponsors to adopt income solutions as retirement income becomes a best practice. Most sponsors believe the primary purpose of a DC plan is to create sustainable income through retirement for their participants. Additionally, they are learning that institutional income products within the DC plan significantly enhance their participants’ retirement security when compared with retail income products and that institutional solutions keep assets in-plan and out of more expensive retail solutions.
Finally, in bracing for a possible bear market or recession, we believe sponsors will evaluate plan design changes that incorporate institutional income and utilize certain insurance products. These types of changes can enable DC plans to be an effective human resource management tool, especially if the economy and strong stock markets pause or decline from the remarkable current 11-year bull market.
David Stinnett
Principal
Vanguard Strategic Retirement Consulting
I have three things that I think we’ll be talking about and focusing on in 2020. The first has to do with the markets. If this record bull market that we’ve been enjoying ends in 2020, how might participants react to more muted market returns. If history instructs us on this, participants, certainly participants in Vanguard retirement plans, stay the course and actually don’t act, switch or make exchanges between funds, but it will be interesting to see if this time is any different.
Second is the recently passed SECURE Act. It will be interesting to see how small businesses react to the provision in the bill that is meant to make it easier for them to form 401(k) plans as part of the multiemployer plan provision, what’s called open MEPs. Congress envisions that as a major way to address or solve the coverage problem in the retirement field. However, because it’s a voluntary provision, not mandatory, it will be interesting to see what kind of attention that gets.
The third thing is advice in wellness. This is already a topic that’s very much front and center in discussions we have with consultants and plan sponsors. The interest and curiosity about advice in wellness service offers both a method to offer participants a way to draw down their retirement balances in retirement, as well as a way to provide a solution for a broader financial wellness need. So, it’s basically a topic that we’re just talking about all the time.