Greetings and welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA omnichannel and CEO at TRAU, TPSU & 401kTV - I review all of last week’s stories and select the most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
Quoting the NY Times, “If the economy is slowing down, nobody told the job market” as February job numbers exceeded experts’ expectations again with 275,000 new jobs. Though unemployment was up a bit, February was the 25th consecutive month that it was under 4% which is the longest streak since the 1960s.
Education, healthcare and government sectors led the growth followed by hospitality and leisure – business services gained only 9,000 jobs.
And though we are no longer in a war for talent, it is still a battle perhaps with more emphasis on retention with retirement benefits a top 3 weapon further fueling the convergence of wealth, retirement & benefits at the workplace offering opportunities for enlightened advisors to be strategic benefit and financial consultants.
The House sent a bill to the Senate in the much anticipated move to allow 403b plans to offer CITs along with making electronic documents delivery the default.
As more retirement plan assets move into more affordable CITs, it only makes sense for 403b participants to have access with most experts believing it will pass soon as retirement policy remains as one of the few bipartisan issues.
Bringing ERISA 403b into the modern era with CITs is hopefully just a step towards fixing non-ERISA k-12 403b plans plagued by outrageously high fees, surrender charges and conflicts of interest that the DC industry remedied 20 years ago. But progress is being stymied at the state level by powerful Washington lobbyists and associations as well as insurance companies and brokers desperate to maintain the multi-vendor teacher retirement systems for their own enrichment.
If data is the new oil, then the financial services industry, especially DC plans, have to work with participants to make it available as the move to personalization continues.
A recent Cerulli reports indicates that 45% of Gen Zers are willing to share their data to get more personalized TDFs compared to just 32% of Millennials and 36% of Gen Y and Baby Boomers.
Consumer research confirms that people are willing to share information if they get value in return and with TDFs taking the lion’s share of new assets, personalization could allow them to incorporate other options such as retirement income.
The 18th annual NEPC DC Plan Trends & Fee Survey with 128 clients representing $259 bn offers a glimpse into the future of retail DC plans.
Highlights include:
- 97% of plans offer a TDF accounting for 47% of assets which has led to shrinking core lineups.
- 86% offer a retirement income solution.
- 43% offer managed accounts but just 5% of participants use them accounting for only 4% of assets – prices have dropped 10% in the past year but the median fee is still 39 bps
Read the recent P&I column by Robert Streyer about the steps that larger plans are taking to offer retirement income solutions.
Years ago, retirement plan advisors built their businesses targeting plans using dabblers and blind squirrels underscoring the dangers while highlighting the benefits of using a specialist. That same philosophy is driving changes for CPA plan auditors along with revised requirements and PEPs which limit auditing costs for their members.
Yet according to a 2023 DOL study, “30 percent of the audits contained major deficiencies…[which] puts $927 billion and 11.7 million plan participants and beneficiaries at risk.”
Advisors need to encourage clients to use an experienced CPA auditor as well as navigate the new definition of which plans must conduct an audit. Read my recent WealthManagement.com column about the opportunities for advisors to distinguish themselves from Triple F advisors.
So those were the most important stories from the past week. I listed a few other stories I thought were worth reading covering:
- Group plan primer as PEPs and others continue to grow
- How DCIOs are adjusting to the active fund runoff
- SEC Chair Gensler defends his AI proposal
- How larger plans are approaching retirement income solutions
- Fred Reish surveys recent court cases and ERISA litigation trends
Please let me know if I missed anything or if you would like to comment. Otherwise I look forward to speaking to you next week on 401k Real Talk.