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How the Pandemic Has Changed 401(k) Plans

Slower June job growth is cooling the war for talent.

It has been just over three years since COVID-19 changed the world forever and just 12 months since things seemed to have returned to “normal.” But the pandemic has changed the world forever, particularly the workforce and especially benefits like 401(k) plans.

Before the pandemic, the biggest obstacles to improving retirement plans at work that frontline HR/benefits and financial professionals faced was the lack of engagement by senior managers. The prevailing sentiment was to maintain the defined contribution while limiting liability, costs and work, not improve outcomes.

After the pandemic, when job growth started recovering after having lost 20 million positions, there was a noticeable shift in resources and attitudes by organizations about their retirement plans. The perspective switched from a tactical benefit like health care, where costs are paramount, to a strategic benefit to help with recruiting and retention. And though June’s job growth at 209,000 shows cooling after 306,000 in May and the lowest growth during 30 consecutive months of increase, the pressure is still on employers to recruit and retain talent using benefits like 401(k) and 403(b) plans as a key component.

The workplace savings platform as a way to help workers with issues beyond retirement has become a common theme with many concepts, like student debt repayment and emergency savings plans, incorporated into SECURE 2.0 legislation. The move to retrofit DC plans to replace defined benefit plans is in process with lifetime income the next big hurdle.

Retirement plans proved to be an effective way to communicate with a remote workforce that faced financial crisis and looked to their DC plans as a stop gap. And though many employers are forcing people back to the office, it is much less than before COVID as people proved that they can be productive working from home. With 53 million people expected to participate at some level in the gig economy in 2023, up from 35 million in 2020, group benefits like DC plans become an important tool to retain workers.

Retirement planning at work is getting a lot of attention in the press, courts and by the government. State mandates, tax credits in SECURE 2.0 and the growing use of group plans like PEPs have resulted in the explosion of small business retirement plans. Litigation has increased with an average of 100 lawsuits annually with others pending about ESG funds and the DOL’s fiduciary rule aimed at the $500 billion in IRA rollovers leaving DC plans annually.

No longer a niche benefit, worksite savings plans like 401(k)s have moved from a nice-to-have-with-little-attention-paid to a must-have-with-a-bright-spotlight. Beyond fees, funds and fiduciary, employers want their providers, especially their retirement plan advisor, to help their employees with all types of financial issues. Most wealth advisors are interested in only 3% of the participants with enough assets to afford personalized planning, and benefit brokers have little to no experience beyond health care and related services.

RPAs that recognize the shift in attitude by DC plan sponsors and can adapt their businesses will be in great demand able to substantially increase their value while their plan fees decline or even reach zero. The next hurdle is trying to dramatically improve engagement using scalable online tools that augment and leverage professionals as people are comfortable meeting virtually.

Just as the pandemic has changed the world and workplace forever, it has also shifted retirement planning at work from a tactical to strategic benefit that will not revert even when the war for talent subsides, as it appears to be doing with the June job growth numbers.

Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.

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