Increased Personalization
One of the themes to come out of the recent LeafHouse National Retirement Symposium was the dawn of a new era of personalization, which is being advanced by growing artificial intelligence capabilities. AI is being looked at as a gamechanger because it is making many more data points available, which can be particularly helpful in personalizing target date funds and newer offerings such as advisor managed accounts and in-plan guaranteed income solutions.
“Looking ahead, advice, financial wellness, and emerging technology like AI are all driving the future of plan design to be more personalized to continue to improve participant outcomes,” Vanguard’s Jeff Clark said.
“To address participant needs for assistance with portfolio management and financial planning, plan sponsors are increasingly offering managed account advice services. As defined contribution plans will continue to serve as the primary retirement vehicle for most workers, in-plan advice solutions will continue to increase in both plan offerings and participant usage,” Clark said. “Plan sponsors also recognize that their employees are often challenged by competing financial priorities. As a result, there will continue to be a large effort in improving participants’ total financial wellness, especially through digital channels.”
Technology and AI will help improve personalized experiences for participants, Clark added. For example, as the workforce becomes more mobile, there could be efforts to help smooth retirement savings behaviors between job changes, as well as preserve assets from prior retirement accounts.
“Given the success of automatic savings solutions such as auto enrollment and annual auto increases, perhaps more could be done to establish personal default savings rates or implement smarter defaults that set a savings rate based on various personal attributes like age or income,” Clark said. “In addition, along with the recent inclusion of auto-portability in SECURE 2.0, there will be more efforts in reducing retirement savings cash-outs and distributions at the end of employment.”
Increasing Access to 401(k)s
As Dan Doonan, Executive Director of the National Institute on Retirement Security, wrote in a September op-ed in Forbes, the most pressing retirement challenge facing the nation is that nearly half of the U.S. workforce is not participating in a workplace retirement plan. “This is a fundamental weakness in the U.S. retirement system because access to a retirement plan at work is critical for building financial security later in life,” Doonan said. “People are much more likely to save for retirement if they can do so automatically through their paycheck. For the U.S. retirement system to work, we can’t leave half of the workforce without a workplace retirement plan.”
This is a problem that the SECURE Act of 2019 and SECURE 2.0 in 2022 were specifically passed to address, and the provisions—many of which have still yet to be implemented—need to be given time to chip away at the coverage gap.
Doonan pointed out that ERISA seems to work well today for large firms, but not for smaller companies. “Running a pension or 401(k) can be difficult for smaller employers, so often, they simply don’t. And it’s likely that large firms are disproportionately represented in discussions about potential improvements to ERISA.”
To increase retirement plan access for workers, Doonan said it’s imperative to make it easier for small employers to offer or participate in retirement plans that have economies of scale and reduce administrative burdens on employers. He noted there have been steps in this direction with pooled employer plans (PEPs) no longer requiring a “common nexus” that severely limits usage, thanks to the SECURE Act.
As we look ahead toward ERISA’s next 50 years, the challenge remains clear: ensuring retirement security for all workers, particularly those employed by small businesses. While legislative advancements like the SECURE Act and SECURE 2.0 are important steps toward closing the coverage gap, much work remains. Achieving true progress will require sustained effort to create a more inclusive retirement system that fully meets the needs of the modern workforce.
EDITOR’S NOTE: This is the cover story from Issue 3, 2024 of 401(k) Specialist Magazine. Read the complete issue here.
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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.
