Benefits December 22, 2023

Experts Predict Expansion of Retirement Income Solutions in 2024

The Institutional Retirement Income Council expects more plan sponsors to implement in-plan retirement income solutions in the new year. 

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A growing number of plan sponsors and industry stakeholders are expected to evaluate and adopt both guaranteed and non-guaranteed retirement income solutions for their defined contribution plans in 2024 to help workers with their financial well-being and retirement readiness, according to the Institutional Retirement Income Council. 

IRIC, a non-profit think tank for the retirement income community, announced its annual list of top retirement industry trends for plan sponsors, providers and advisers to watch out for in the new year. 

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Michelle Richter-Gordon, executive director of IRIC, said in a press release that the industry might be at a “tipping point” when it comes to the adoption of retirement income solutions within a DC plan. 

“Traditional pension plans, which provide a guaranteed income stream in retirement, have become less common in the private sector,” Richter-Gordon said. “With the rise of DC plans such as 401(k)s, the responsibility for retirement savings and investment decisions has shifted from employers to employees. As a result, there’s an increasing recognition of the need to help participants convert their accumulated savings into a reliable income stream during retirement.” 

IRIC identified the following retirement industry trends to watch in 2024: 

  • Increased focus on retirement readiness: IRIC predicts that more plan sponsors will offer in-plan retirement income solutions that align with the broader goal of helping participants achieve financial security in retirement, rather than just accumulating a lump sum.
  • Market innovation: New retirement income products, including both guaranteed and non-guaranteed solutions, are expected to become more available, as there is an increased demand for solutions and investment strategies.
  • Growing participant demand: Participants interest in solutions that provide more certainty about their financial future in retirement is expected to increase. Many employees appreciate the idea of having a reliable income stream, and plan sponsors are responding to the demand. 
  • Customized investment solutions: Plan sponsors are exploring more personalized and customized investment solutions, such as target-date funds that take into account individual employee circumstances and risk tolerances, as well as retirement goals and retirement income needs. 
  • Further consideration of automatic features: Plan sponsors will explore incorporating automatic features in their investment menu that include a retirement income program.  
  • Increased employee education and communication: Plan participants seek help from their employers when it comes to saving and planning for retirement. Plan sponsors are expected to make education and employee communication about retirement plans a high priority in 2024. 

        In addition to these anticipated retirement income trends, David Stinnett, a principle at the Vanguard Group and its head of strategic consulting, told PLANSPONSOR that he expects there to be increased focus on the idea of “total financial wellness,” largely because of the SECURE 2.0 Act of 2022 provisions set to go into effect. This includes the option for plan sponsors to offer matching 401(k) contributions for those making qualified student loan payments, as well as offer two types of emergency savings accounts.  

        Similar to IRIC’s prediction, Stinnett said he expects increased personalization when it comes to plan design and the investment menu and predicts that the concept of a tiered investment structure will become more popular. This is when investments are organized into multiple tiers, and each tier represents a subset of investments from which a participant can choose.  For example, one tier could be a target-date fund for participants who do not want to self-direct investments, while a different tier could be a brokerage window for participants who prefer specialized fund choices beyond the core investment menu. 

        Stinnett also said offering low-cost financial advice services to increase personalization is a trend he expects to continue in 2024. 

        Compliance December 22, 2023

        DOL Proposes to Rescind 2018 Association Health Plan Rule

        The original rule, had it not been vacated by a federal court, would have significantly relaxed the parameters for creating an association health plan.

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        The Department of Labor on Tuesday proposed to formally rescind a rule finalized in 2018 that was intended to make it easier to form and join association health plans. The 2018 rule was vacated by the U.S. District Court for the District of Columbia in 2019.

        The DOL press release explained that the 2018 rule made it easier for small and individual plans to be treated as large group plans in order to evade some of the requirements and protections of the Affordable Care Act.

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        “A lot of it has to do with getting around the Affordable Care Act rules,” says Roberta Casper Watson, a partner with the Wagner Law Group. The district court decision also remarked that the rule was “clearly an end-run around the ACA.”

        Watson explains that the Employee Retirement Income Security Act includes the concept of employer associations in its definition of employer. Under ERISA, an association can be considered an employer for the purposes of creating a health plan, but “there were several rules that are hard to comply with” in order to be classified as one prior to the 2018 rule.

        According to Watson, an association must exist for a legitimate business purpose and not merely to create a health plan; there must be a “commonality of interest” among the members, such as belonging to the same industry; and member employers must “exercise control over the plan in form and substance.”

        The 2018 rule made it easier to become an association health plan by liberalizing these standards. It permitted associations to be created for the purpose of making a plan; expanded the commonality requirement to include geographic proximity; and added the concept of a working owner, meaning a small business owner with no employees.

        In 2019, a federal court determined that this rule violated ERISA because it effectively permitted associations that did not resemble an employer relationship to act as if they had such a relationship with their members.

        Assistant Secretary of Labor Lisa Gomez, in an interview with PLANSPONSOR, explains that the 2018 rule “provided guidance on under what circumstances employers or associations of different entities could set up what are called association health plans and by doing so, they would be treated as a large group coverage rather than individual or small group health coverage.”

        She adds that “we have been working on what the response to that court case should be and so we issued this proposal earlier this week, which is a proposal to formally rescind that rule and to get comments from the public about where we should be moving forward.”

        A comment period will remain open until February 20, 2024.

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