4 Trends Shaping Up in 401(k)s
What You Need to Know
As more and more wealth is generated in workplace retirement plans, new innovations are needed to serve plan participants.
Wealth managers and insurance carriers will have a key role to play in the emerging world of DC retirement plans.
Industry executives see a fast-growing need for trusted, fiduciary advice about retirement income.
On Thursday, the Employee Benefit Research Institute hosted its 2022 Retirement Summit in Washington, D.C., featuring representatives of the U.S. Department of Labor and the U.S. Chamber of Commerce.
During the event, Labor Secretary Marty Walsh laid out his department’s priorities for 2023, stating: “Retirement security is a fundamental need that all working people have, and it’s part of our mission at the Department of Labor.”
The day-long policy event also featured a panel of top-level executives from across the defined contribution retirement plan industry, during which each was asked to offer up their biggest and boldest ideas for advancing retirement outcomes among U.S. workers.
While many of their ideas are ostensibly focused on workplace DC plan issues, the panel agreed that wealth management professionals (and the insurance industry, too) have a key role to play in the effort.
The speakers included Anne Ackerley, managing director and head of BlackRock’s retirement group; Dan Houston, chairman, CEO and president at Principal; Ken Mungan, chairman of the board at Milliman; and Rich Nuzum, president of investments and retirement at Mercer.
Collected below are highlights from the panelists presentations. While each shared their own unique perspective, there was clear agreement among the panelists that all financial professionals must do their part to help the U.S. retirement system solve its various challenges — especially when it comes to improving access to lifetime retirement income solutions and expanding access to savings opportunities in the workplace.
1. 401(k)s as a Guaranteed Income Source
“My big vision is that everyone should be able to generate a paycheck, for life, from within their 401(k) plan, and in a manner that is optimized to meet their personal situation,” Ackerley said. “This may be a bit controversial, but I do think many people will be best served if their income is coming from the 401(k) plan system.”
According to Ackerley, the workplace DC plan system already has critical infrastructure in place and an important degree of baked-in trust among American workers.
“The DC system benefits from the inherent trust and connection that people have with their employers,” Ackerley said. “The system also delivers economies of scale that allow people to benefit from lower fees and from fiduciary oversight.”
In Ackerley’s view, the next frontier for the DC plan system, which is already being worked on, is solving the challenge of delivering guaranteed lifetime income to people who have much or all of their wealth within a 401(k)-style retirement account.
“My personal view is that guaranteed income should be an option today within 401(k) plans, and personally, I would go so far as to say it should be an element of the default investment,” she said. “When I say ‘guaranteed income,’ I am thinking of solutions with three primary components. They must be affordable, understandable and easy to use.”
In an ideal world, Ackerley said, private market financial advisors with income planning expertise would be made available to every single retirement plan participant as they reach the end of their career and start planning for life after work. Unfortunately, that is an unrealistic expectation, she noted, given the bespoke nature of the work of the best wealth managers.
“I believe that tech-based, mass market solutions can provide a lot of support for those who aren’t able to work with a wealth manager,” Ackerley suggested. “As people get close to retirement, we must at least make sure that everyone has some kind of tech-enabled tool kit or support that helps them avoid mistakes and hopefully optimize their income approach.”
2. Employers Looking for More
In Houston’s experience, today’s employers deserve a lot of credit for their commitment to the provision of DC-style plans to their workers. Many people tend to focus on the demise of pensions, Houston says, but the rise of the DC plan system is an equally compelling and far more positive story.