As the year starts to ramp up, it’s time to see what’s making the headlines and garnering the focus of plan sponsors and recordkeepers. Whether you offer a retirement plan as part of a competitive benefits package or simply as a vehicle for employees to save for retirement, these trends are worth following, as they have a way of eventually becoming the norm.
1. Focus on Retaining Retiree Assets
Retiree assets can account for a significant amount of plan assets. With boomers retiring and withdrawing money in record numbers, this can result in negative cash flows. According to Cerulli Associates, in 2014, overall 401(k) distributions exceeded contributions for the first time,1 and the trend is continuing. Losing these assets reduces a plan’s leverage and economies of scale, driving up fees for remaining participants. Depending on individual circumstances, remaining in a qualified plan could be beneficial for a retiree as well due to the many benefits provided by ERISA, creditor protection and generally lower fees than a retail structure such as an IRA.
2. Health Savings Accounts (HSAs)
With high-deductible health plans more the norm, companies can ease the pain by offering an integrated HSA solution. Contributions and withdrawals for medical reasons are tax-free. In addition, HSAs are now being valued for their post-retirement benefits and as another source of comprehensive retirement planning and funding. Unused balances carried into retirement can be used for any purpose penalty- free. However, in order to be both tax-free and penalty-free a distribution must be for qualified medical expenses.
3. Financial Wellness
While this may seem like an old trend, it’s continually taking on new meaning as plenty of research validates the links between financially healthy employees and productivity in the workplace. A 2017 study of 1,600 workers conducted by PricewaterhouseCoopers found that nearly half of employees who are worried about their financial health miss work occasionally and are less productive when they are at work.2 Unfortunately, financial education is not taught at any level, so topics such as learning how to budget may be a first step for some, while paying down debt may be the focus for others.
4. Targeting Non-Participating Employees
Look for plan sponsors to no longer be satisfied with traditional excuses such as “we have a low-paid work force” or “employees are saddled with student loan debt” as employers attempt to help knock down these barriers with creative solutions.
5. Offer Sustainable and Socially Screened Investments (SSI)/Environmental, Social and Corporate Governance (ESG) Screened Strategies
More attention to environmental and societal issues is on everyone’s mind, and younger generations such as millennials note that as a top priority. With millennials the dominant force in the workplace, the investment industry is gearing up for demand, and many money managers have or are developing solutions with this focus of sustainability in mind.
It’s Time to Take Action
Keeping benefits competitive is important for attracting and retaining employees. With these trends above, comprehensive retirement planning has solidified that it is a must for businesses.