Key DC Trends Shaping the Retirement Industry in 2025
An annual U.S. Retirement Market Outlook webinar from T. Rowe Price highlighted major themes in store for 2025, from retirement income in defined contribution (DC) plans to what lies ahead for rules on fiduciary responsibilities and environmental, social, and governance (ESG) investing.
“As the retirement landscape continues to evolve, industry leaders must remain agile and forward-thinking in order to best serve the needs of today’s and future retirees,” said Michael Davis, head of global retirement strategy at T. Rowe Price, in a press briefing to reporters.
The panel featured commentary from Kathryn Farrell, a target date portfolio specialist with T. Rowe Price, along with Jessica Sclafani, global retirement strategist; Rachel Weker, senior retirement strategist; and Aliya Robinson, director of congressional affairs. Among the leading themes discussed for the new year included continued evolution of qualified default investment alternatives (QDIAs), retirement income solutions, emergency savings accounts, and policy changes under a new Trump administration.
Next: Evolving QDIAs
Evolving QDIAs
Farrell noted an increasing interest in blend implementation among investments. Specifically, 47% of target-date investment management style consultants are most likely to recommend a blend of active and passive strategies, an increase from 36% in previous findings. Seven percent of consultants say they would suggest an active strategy, at no change from the prior year, while 47% would recommend passive, a decrease from its previous 59%.
Collective investment trusts (CITs) are also experiencing shifts in adoption. The investments, which surpassed mutual funds as the most popular target-date vehicle in 2024, have slowly climbed in assets and market share. CIT assets accounted from 24% of total assets in 2023, according to T. Rowe Price’s findings.
Looking at the year ahead, Farrell recommends plan sponsors rethink managed accounts and opportunity for personalization heading into retirement. “Plan sponsors who are happy with their QDIA can still offer participants the experience of personalizing their target-date investment,” she said during the panel.
Next: Different priorities for retirement income
Different priorities for retirement income
While retirement income needs can be highly diverse, T. Rowe Price observed a severe reduction in the number of plan sponsors ignoring lifetime income options. For example, 59% of consultants’ and advisors’ DC plan clients said they did not have an opinion on retirement income in 2021. Today, that figure has decreased to 19%.
Furthermore, 18% currently offer an in-plan retirement income solution or are planning to add one within the next 12 months—an increase from 8% in 2021.
The reason? As employees struggle to save due to competing priorities and high inflation, more employers understand the shifting role they play in a participant’s retirement. In fact, plan sponsors are realizing “a paternalistic style to do the right thing by participants,” said Sclafani.
Despite the increase in retirement income solutions, priorities differ from one plan to the next. Some plans may choose to focus on student loans or emergency savings programs instead, depending on their employees’ needs.
“Rather than focusing on short-term participant adoption rates to define success, we encourage plan sponsors to define success by offering a range of diverse solutions for their participants,” Sclafani added.
Next: Emergency savings adoption
Emergency savings adoption
T. Rowe Price’s panel emphasized the demand for emergency savings solutions as workers balance short-term needs with long-term financial goals. The firm’s 2024 Retirement Savings and Spending Study found that 33% do not believe they are saving enough, while 21% are not sure whether they are.
Still, 55% of participants surveyed said they could cover an unexpected expense of $1,000, and 33% have six months or more of income saved for an emergency.
As provisions offered in SECURE 2.0 expand emergency savings account adoption, 52% of plan sponsors expect the number of out-of-plan emergency savings programs to increase, while 70% believe the same for in-plan programs.
Next: Public policy in a Trump administration
Public policy in a Trump administration
Robinson, director of Congressional Affairs at T. Rowe Price, examined changes to retirement tax legislation as president-elect Donald Trump and a Republican-led Congress take on leadership later this month.
Robinson detailed Trump’s campaign promises on tax cuts, which include lowering the corporate rate even further, to 15% from 21%; ending taxation of tips, overtime pay, and Social Security benefits; and reversing the cap on state and local deductions.
She expects the cuts to influence the retirement industry, as the Trump administration and Republicans explore ways to raise revenue. This includes a Rothification of all retirement contributions—although this was later renounced by Trump—capping employer deductions for employee benefits, and ending nonqualified deferred compensation (NQDC), among other tactics.
“We expect the retirement system to be impacted by these tax cuts, as they look for revenue raisers,” Robinson said.
Regarding the fiduciary and ESG rule moving forward, Robinson expects both to revert to its form during the first Trump administration, whether that includes changes to the legislation or regulation.
“We expect to see both of these rules to go back to the versions under the Trump administration,” she said. “The question is how, either through legislation or regulation.”
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