5 Retirement Industry Trends to Follow This Year

Retirement plan advisers would do well to watch for developments in five key areas during 2024, according to Kate Blake, a senior consultant at Pentegra Retirement Services.

During a Pentegra webinar, Tuesday, Blake urged advisers to pay attention to trends relating to interest rates, legislation, plan documentation, the younger workforce and existing technology. Based on those, she said, advisers should consider taking the following actions:

1) Understand the effect of interest rates on defined benefit pension plans

A trend stemming from the current interest rate environment is plan sponsors reopening old cash balance plans. In doing so, the sponsors capitalize on the reduced cost of funding pension liabilities, which allows for a gradual reduction of overfunding, Blake said. Cash balance plans are particularly popular among smaller employers and professional organizations aiming to maximize contributions and retain long-serving employees.

“I don’t think everybody should be out there starting up new pension plans,” she said. “This is certainly a strategic discussion. But, depending on the relationship and the nature of the benefit package that an employer may offer, this is an opportunity to help provide some plan termination consulting services for those old CB plans that are less expensive to terminate. Or maybe it’s a good opportunity to offer consulting services for reopening an old plan.”

2) Stay current on legislative updates

The legislative focus this year continues to be on implementing provisions from the Setting Every Community Up for Retirement Enhancement Act of 2019 and the SECURE 2.0 Act of 2022, Blake said. She pointed in particular to plan sponsors’ option to provide de minimis financial incentives with the goal of boosting 401(k) plan contributions, which went into effect December 29, 2022.

“It’s worth exploring, potentially with employers that may have lower-than-desired participation rates—especially if they happen to be employers for non-safe harbor defined contribution plans where highly compensated employees are getting refunds,” she said. “I might explore this as an option to minimize those refunds by boosting the contribution rates as non-highly compensated through these financial incentives.”

Another noteworthy provision enables employers to make Roth matching contributions, treating them as Roth after-tax contributions, she said. This change, also effective December 29, 2022, provides potential benefits, particularly for younger workers in lower tax brackets, allowing their contributions to grow tax-free over time, she noted.

Further, the mandatory automatic enrollment for new plans and the safe harbor for correcting missed deferrals address operational errors in auto-enrollment arrangements, simplifying the correction process. Long-term part-time employees, working 500 hours or more, may now be included for deferral purposes in certain DC-style plans, expanding retirement plan access, she said.

3) Maintain the plan document proactively

Proactive document maintenance is paramount, particularly since, through SECURE 2.0, the Department of Labor extended the plan amendment deadline from the original SECURE Act until December 31, 2025, Blake said.

Operational compliance, however, is required even in the absence of amendments, emphasizing the need for timely adjustments from advisers and the plan sponsor. Engaging in a discussion about plan documents opens avenues for exploring additional voluntary provisions and aligning the plan with current best practices, she said.

4) Consider the needs of younger generations entering the workforce

The evolving demographics in the workforce, with the emergence of Generation Z, requires a review of plan provisions to ensure they align with the changing needs of employees, Blake suggested.

She cited statistics from the PLANSPONSOR Benchmarking Report that highlight areas needing improvement, such as those to do with vesting schedules, eligibility waiting periods, and the adoption of auto-enrollment, as well as deferral escalation features.

“This is another reason why that plan document discussion is just so critical,” she said. “Is your plan really suitable for these changing workplace demographics?”

5) Use technology to your advantage

Lastly, Blake talked about leveraging technology, including artificial intelligence and machine learning, to aid plan administration and enhance participant education. Notably, AI can crunch data a lot more efficiently than we as humans can, she said.

“Imagine the kind of datasets you could feed into an algorithm, the type of benchmarking data you can get out, and the value-add that might be to client conversations,” she said.

She added that there are a few other technology best practices “at our fingertips” that advisers should encourage their plan sponsor, and other, clients to use.

“We get so into chatGPT and other things that we forget what’s already here,” Blake observed. “Almost every provider these days has automatic rebalancing. [It] should be a part of participant planning and education. Secure file exchange is standard these days, so make sure you’re using that if you are not already.”