What are three high level retirement trends 401k plan advisors need to have on their radar right now?
According to Senior Retirement Strategist at American Century Investments Glenn Dial, that would be the recent spate of lawsuits around target-date funds; handling the transition risk from accumulation of retirement funds to decumulation; and familiarizing yourself with in-plan guaranteed income solutions.
Dial dove into all three topics during the opening keynote session this morning on the main stage at the Wealth@work conference in Las Vegas.
The session explored what Dial called the most pressing developments facing the 401k industry, and he started with how recent market volatility and court decisions are impacting the prudent process for target-date fund selection and monitoring.
“Did anyone see a lawsuit coming for chasing low fees?” Dial asked the crowd, referring to the suits the Miller Shah law firm has filed against a variety of large plan sponsors utilizing BlackRock TDFs.
What’s behind it?
“As of January of this year, I have $3.3 trillion reasons why TDFs are being targeted. Follow the money,” Dial said, adding that plaintiff attorneys see the popular 401k tool as big targets for fee-based lawsuits.
Why do they focus on fees?
“The reason they focus on fees is it’s easy to calculate,” Dial said. “Plan A charges more than Plan B? Let’s sue Plan A!”
The problem? They cherrypick timeframes and peer groups, and still the TDF in question is rarely the worst performing. And they get sued anyway.
But because TDFs have $3 trillion in them, Dial said lawsuits are probably here to stay. “I think TDFs are going to be under the microscope from now on. We’re going to be having to do that extra level of due diligence.”
As for handling the transition from accumulation to decumulation, Dial noted the industry has done a good job of helping participants accumulate enough money to retire, but not enough to help them make the transition to retirement income—particularly if something goes wrong and they have to retire early. That happens nearly half the time, Dial said.
We should congratulate ourselves because we’ve done a heck of a job getting people into 401k plans,” Dial said. “But we’re only solving for half of the problem. We haven’t been solving for the retirement income part.”
Meanwhile, few participants actually have an advisor that can help talk them off the ledge during market downturns.
As for in-plan guaranteed income, Dial hinted momentum is building after a slow start (with a SECURE Act push), and plan advisors need to get up to speed because the questions from plan sponsors are coming if they haven’t already.
The multi-billion plan sponsors are now having these conversations,” Dial said. “Next summer you’ll probably be asked by plan sponsors. We need to get ahead of it. Start educating yourself on retirement income products.”
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.