Fidelity notes that employers are concerned that many employees aren’t saving enough and won’t be financially ready to retire. Workplace savings plans haven’t typically been designed with an income replacement goal in mind, but more employers are using auto solutions and higher default deferral rates to put employees on the right track. As of today, nearly one-in-five employers design their plan with a target specific income replacement rate, compared to only 4% of employers in 2013.
The company also predicts stricter guidelines around defined contribution (DC) plan loans. Most people who take loans do so for needs such as home repairs, medical bills and unplanned expenses, Fidelity research shows, but half of those loan-takers get another loan (or more). Employers are putting stricter rules around loans and are using data to determine where proactive education may be needed to help avoid the cycle of repeat borrowing.
Fidelity expects a rise in the use of target-date funds (TDFs) and managed accounts. More than 45% of 401(k) participants have all their plan assets in a target-date fund, up from 20% in 2010. For younger participants, 65% have all their assets in a target-date fund. In terms of managed accounts, the number of employees utilizing this option has nearly tripled over the last two years.
Finally, the company is looking at changes in Washington. The Department of Labor (DOL) fiduciary rule is expected to transform the retirement plan industry, particularly with the role and compensation for financial advisers. Today, advisers’ fees vary based on a plan’s investment options—different funds paid at different rates. But Fidelity is seeing advisers move to a flat payment approach where their compensation and fees are the same regardless of the investments.