Data and Research December 2, 2021

New Year Brings Both Novel and Familiar Industry Challenges

From accelerating provider consolidation to the persistent retirement plan coverage gap, there are no shortage of issues for the retirement plan industry to tackle in 2022.

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A recent panel discussion hosted by Vestwell explored experts’ predictions for what retirement plan industry practitioners can expect in the new year. The panelists also answered questions about new trends and identified those that would be best to get ahead of.

Among the speakers on the panel discussion was Fred Barstein, founder and CEO of The Plan Sponsor University (TPSU) and The Retirement Advisor University (TRAU). In Barstein’s view, retirement industry consolidation has been an important topic for several years now, and it will continue to be so in 2022. He said consolidation will persist among both retirement plan advisers and recordkeepers and other service providers. Though the industry has not yet reached this stage, Barstein said there could be a point in the future where dwindling competition could lead to a lack of innovation, as firms in a highly consolidated industry would have to work less hard to differentiate themselves.

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Barstein said retirement plan sponsors and advisers must be mindful in 2022 of the impact that ongoing consolidation will have. There seems to be an intensifying battle over “who has the right to service or monetize participants,” he warned.

On the other hand, Jeanne Fisher, Strategic Retirement Partners managing director, said recordkeeper consolidation does not concern her, and she sees it as a fruitful opportunity to improve outcomes as recordkeepers add scale and consolidate their resources. She also said she feels concerns some parties raise about protecting participant data and ensuring adequate competition are reasonable, but they should remain in check for the foreseeable future.

Fisher said there is no doubt that a retirement plan coverage gap exists, and it is up to industry providers, not just employers, to find a solution for this problem. Most employees who lack access to a retirement plan are not asking for one, she noted, simply because they don’t realize their lack of access is a serious problem for their financial futures.

The panelists said they anticipated that pooled employer plans (PEPs) could help address the coverage gap in 2022, but this marketplace is still just getting started.

Heading into next year, there is also a lot of demand to modify defined contribution (DC) plans and complement them with guaranteed retirement income solutions, but there are a few reasons why this isn’t happening at a wide scale just yet, Barstein said.

He noted that PEPs currently have issues with transferability when the plan sponsor moves from one recordkeeper to another, and many recordkeepers are not always willing to accept annuities offered by another provider. It is expected that legislative developments, including automatic portability requirements mandated by the Setting Every Community Up for Retirement Enhancement (SECURE) Act, could help address this problem, but the speakers said this is an evolving topic.  

According to the experts, financial wellness is increasingly seen as a critical solution to help workers and retirees meet their goals. There is a growing recognition among may in the retirement plan industry that the retirement savings gap is unlikely to be erased without improving the shorter-term financial wellness, resiliency and well-being of those enrolled in DC plans.

In a related trend expected to continue in 2022, employers are struggling to recruit and retain workers, many of whom are looking for new opportunities. For a variety of reasons, the competition for labor is more intense than ever, and the situation shines a spotlight on the need for employers to offer more competitive benefits, including those tied to comprehensive financial wellness.

Compliance December 2, 2021

2021’s Retirement Legislation Wishlist Left Unfulfilled

Retirement plan industry lobbyists and advocates hoped 2021 would deliver another much-needed round of reforms building on the SECURE Act of 2019, but so far, they have remained disappointed.

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It has now been nearly two weeks since the U.S. House Committee on Education and Labor voted unanimously to advance legislation that would improve access to retirement plans for employees and ease plan administrative burdens for employers.

The Retirement Improvement and Savings Enhancement (RISE) Act (H.R. 5891) was introduced in early November by Committee Chairman Bobby Scott, D-Virginia, with support from Representatives Virginia Foxx, R-North Carolina; Mark DeSaulnier, D-California; and Rick Allen, R-Georgia.

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The RISE Act includes provisions that have been introduced in separate pieces of legislation, including the Securing a Strong Retirement Act, often referred to as “SECURE 2.0,” in a reference to 2019’s Setting Every Community Up for Retirement Enhancement (SECURE) Act. For its part, SECURE 2.0 was passed unanimously by the House Ways and Means Committee back in May, and companion legislation has been introduced in the Senate.

For much of 2021, the relative flurry of retirement plan-related legislative activity had experts feeling hopeful that much-needed progress was right around the corner. Their hope is that SECURE 2.0 and related legislation such as the RISE Act will enable millions more workers to build savings through employer-provided retirement plans. For example, a key feature of SECURE 2.0 is a mandatory automatic enrollment provision for new retirement plans; the bill also increases a tax credit for small business owners to encourage them to offer their employees a retirement plan.

As recently as September, these and other retirement-focused policies featured prominently in the Democrats’ “Build Back Better” budget framework. In fact, an early version of the budget language dedicated the entire “Subtitle B” section to retirement-related legislative recommendations. Language in this section of the draft would have generally required small business employers to offer their employees a retirement plan. The early draft would also have set new, higher limits on contribution ranges and the amount of employees’ earnings that could ultimately be tax-deferred. Other provisions would have required automatic enrollment retirement plans to include a protected lifetime income distribution option for plan participants.

More recently, however, industry advocates’ hopes for such retirement reforms being passed as part of the ongoing federal budget negotiations have mostly been dashed. After multiple rounds of revisions, the current version of the budget legislation doesn’t include any of the aforementioned retirement-related provisions. Some insiders have pointed out that the paring back of paid family and medical leave provisions seems to have led to the retirement plan coverage expansion provisions being removed as well.

Moving forward, sources say, it is likely that two urgent fiscal deadlines—one related to the federal debt ceiling and the other to the budget—will dominate the congressional agenda for the remainder of the year, making the prospect of imminent retirement reforms less likely.

First, the latest short-term measure that is currently funding federal agencies and initiatives is set to expire Friday, which means the House and the Senate need to adopt another spending fix or risk a major disruption. Second, lawmakers must move to preserve the country’s ability to borrow to pay its bills, addressing the cap known as the debt ceiling. Sources say Washington will experience an economy-crippling default if legislators don’t reach a compromise on the debt ceiling, and they expect that fight to consume much of the remaining legislative oxygen available this year.

All in all, it appears likely that retirement reforms will have to wait for 2022. Experts also say it is more likely that reforms will be made either via standalone legislation or as part of a future omnibus bill that has yet to take shape.

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