Top of Mind


Revisiting Predictions: 2020 Retirement Plan Trends

This time last year, I made some predictions as to the hot retirement plan trends for 2020. Needless to say, this year turned out to be quite different than we all expected. But how did that impact our predictions? Let’s take a look:

  • Prediction #1: “Employee Engagement 2.0,” with increased plan sponsor focus on assisting employees with their finances — Verdict: Mixed. While there was an increased plan sponsor focus in this area, it did not necessarily result in the proliferation of new financial wellness programs for employees (e.g., student loan debt assistance, budgeting assistance, etc.). However, retirement plan recordkeepers are clearly expanding their offerings in this area (Empower’s high-profile acquisition of Personal Capital is one example), so look out for this trend in 2021.
  • Prediction #2: Engaging missing/unresponsive participants — Verdict: Yes. This was a repeat prediction from previous years. Plan sponsors continue to close the gap, to a point where it is now unusual for plan sponsors to have a significant percentage of missing folks. This percentage might decrease to near-zero, if the currently proposed Secure Act 2.0 becomes law, since there would be an national online database of lost accounts.
  • Prediction #3: Eradication of small account balances of terminated employees — Verdict: No. As much as I would prefer for this not to be the case, the number of small retirement account balances that are not cashed out continues to be a problem for many plan sponsors. In the plans that contain cash-out provisions, recordkeepers need to do a better job of ensuring that these provisions operate efficiently, with little employer involvement. One way plan sponsors can help this issue is to amend their plans to allow for all small account balances to be rolled over, not just those over $1,000.
  • Prediction #4: Putting an end to unnecessary plan leakage — Verdict: No. This time last year, no one was aware of the looming pandemic that resulted in Congressional legislation (the CARES Act) that actually increased retirement plan leakage. While my prediction was wrong, the massive leakage anticipated in 2020 did not come to fruition, as many participants affected by COVID-19 were able to avoid tapping into their retirement accounts for pandemic-related needs, presumably thanks to stimulus checks and other CARES Act relief.
  • Prediction #5: Developing a smart approach to addressing retirement plan revenue sharing—Verdict: Yes. In all but the smallest of plans, most plan sponsors have moved to investment lineups that are free of revenue sharing, contain the lowest net-cost share classes of funds, or both. The only holdout is some large 403(b) annuity contracts, where revenue sharing is built into these arrangements. However, even in these plans, revenue sharing has decreased – and I look forward to the day where zero-revenue sharing options are available in these contracts, as well.
  • Prediction #6: Migrating to a per-head flat dollar recordkeeping fee, as opposed to a percentage of assets — Verdict: Yes. A number of plans have moved to per-head flat dollar recordkeeping fees in 2020 - so many that, in larger 401(k) plans, per-head fees are the rule, rather than the exception. 403(b)s lag in this regard, but the same trend has been exhibited in these plans as well.
  • Prediction #7: Getting rid of every last piece of paper in the administration of retirement plans — Verdict: Yes. The Department of Labor’s Final Rule issued in June, made it far easier for plan sponsors to provide electronic disclosures. Plan sponsors should review this concern with recordkeepers that are still providing a significant amount of paper to participants.
  • Prediction #8: Managing the increasing population of successful retirees — Verdict: Mixed. Again, the COVID-19 pandemic wreaked havoc on this prediction, due to the layoffs of many retirement-age employees whose future employment is uncertain, along with many employees remaining employed who otherwise would have retired. Thus, it is challenging to evaluate this trend, due to the uncertainly as to whether the pandemic will have long-term effects on retirement patterns.

In summary, it looks like I had four hits, two misses, and two mixed bags, which is on par with my prediction accuracy from previous years. What will the 2021 retirement plan trends be? Stay tuned for our predictions.

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Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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