The Future of Retirement Plans
In our Revamping Retirement podcast, we have been addressing the evolution of the retirement plan landscape over the past 25 years. And a lot has changed - from technology, plan design and investments, to, of course, fees. But what might the next 25 years have in store for the future generation of retirement plan sponsors? Here are my thoughts, should past trends continue:
- There may not be a need for investment due diligence reviews, in the traditional sense — I believe that there may no longer be participant-directed investments, per se. Instead, perhaps they will be replaced by turbo-charged managed accounts that are automatically customized to the needs of each individual participant. A computer algorithm could select the optimal underlying investments for each individual, removing plan sponsor discretion from the equation (except on the part of choosing the managed account provider).
- The concern over individuals saving enough for retirement may disappear — In the future, I hope to see all participants auto-enrolled at a customized contribution rate that is projected to accumulate enough savings for each individual’s retirement. With this concern eliminated, plan sponsors could shift their focus from accumulation to decumulation/longevity planning, as there will be far more retirees!
- Pricing could FINALLY be easy to understand! — In the future, perhaps we will eliminate revenue sharing and asset-based fees. Instead, participants could pay dollar-denominated fees that are deducted directly from their accounts, similar to annual fees on other financial accounts. These fees would include all expenses, including investment management. A bonus to this scenario: there would no longer be the need for fee disclosures, since pricing will be obvious to all.
Okay, I admit that a lot of this is aspirational, rather than predictive - but wouldn’t it be fun to see it come true! After all, if I told someone 25 years ago that target date funds would be the dominant investment in retirement plans today, I likely would have heard, “target date WHAT?” Concepts that seem far-fetched today could certainly be a reality in the 2040s!
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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