Principal CEO: Recordkeepers Should Get Creative to Enhance Services, Go Beyond Scale

Dan Houston, chairman and CEO of Principal Financial Group, says scale continues to be important for the vastly consolidated recordkeeping space, but stressed that innovation and participant services that plan advisers can best leverage is what will lead to sustained growth.

Houston, speaking Monday at the PLANADVISER 360 conference on Monday in Scottsdale, Arizona, said he anticipates further acquisitions and consolidation among recordkeepers, but that the future is requiring more customization for advisers and plan sponsors.

On Tuesday, Principal announced that Houston will step down as CEO at the start of 2025, to be replaced by Chief Operating Officer and recently named President Deanna Strable. Houston will continue to serve as the executive chair of Principal’s board.

In a final public appearance before the announcement, Houston stressed the need for the retirement industry to better meet the needs of participants.

“The question is, how do you create a platform that allows advisers, participants and plan sponsors to be better, well served and really checking the box on financial security?” he asked. “And we can’t always be dependent on government rules and regulations changing like Secure 1.0 and 2.0,” referencing the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and the SECURE 2.0 Act of 2022.

He said the lack of standardization in recordkeeping processes has been further complicated in the past decade due to the growing demand from large employers for more tailored solutions that link with their existing systems.

“There are as many ways to handle record-keeping as there are recordkeepers,” Houston explained. “The technical side of it is complex, and it’s only become more so as plan sponsors increasingly demand customization and integrated solutions for their payroll and benefit systems.”

Principal acquired Wells Fargo & Company’s retirement division in 2019, bringing on a number of large plan sponsors.

Houston addressed the challenges of managing not just 401(k) records but also other retirement and benefit-related data, including frozen defined benefit plans and deferred compensation arrangements. He emphasized the need for recordkeepers to provide consolidated views for plan sponsors, making it crucial to manage these different data types in a unified and secure way.

401(k) Trust

Houston also spoke about the importance of maintaining the trust of U.S. workers and expanding access to employer-based retirement plans, rather than having government programs step in.

“401(k) participants trust their employer,” said Houston. “Not only do they trust the employer, but they also trust this industry that the money they’re setting aside is going to be there.”

Leah Sylvester, executive partner, president of retirement plans at Shepherd Financial LLC., who was speaking with Houston during the fireside conversation at the conference, gave the example of a person who, in switching jobs, did not have access to an employer-based retirement plan. Sylvester offered to help the person open an IRA, but found it took considerable effort to carve out the time to complete the process.

“The account process wasn’t hard,” Sylvester explained. “It’s just how do we get people to pause to do the things that they already know they should be doing?”

She noted that this challenge is common, as people often struggle to take the necessary steps toward securing their financial future, even when they understand the importance of doing so.

Houston agreed, speaking to the need for the retirement plan industry and employers to keep expanding workplace retirement plan access—as opposed to government programs that have been discussed and brought forward by some policymakers.

If the industry can’t create “convenient payroll deduction at the workplace, some other system will,” Houston said. “That’s why the industry trade [associations] are paying very close attention to what the Democrats and the Republicans are doing to make sure that there is a commercial need to ensure that people don’t fall through the system as we define it. In other words, broadening the scope to include IRAs at the workplace. That’s something that’s on my mind every day, and we have the capacity today to do that.”

Election Impact

While emphasizing the need for the retirement industry to maintain its trustworthiness, Houston also acknowledged the other events in the political landscape that could impact the future of retirement savings such as tax implications.

With Republicans likely to hold control in the House, Senate, and the presidency in 2025, Houston noted that political dynamics might reduce immediate pressures but warned that the federal deficit continues to grow in what remains a relatively strong market. As co-chair of the American Council of Life Insurers Tax Committee, Houston has been vocal about the importance of the tax-deferral benefits enjoyed by 401(k), 403(b) and other defined contribution retirement plans, which he argues are crucial for motivating retirement savings.

“Employers want to support their employees, and the tax-deductibility of retirement contributions is a key factor,” he emphasized. “Participants value the ability to defer taxes until they’re likely in a lower tax bracket, typically in retirement, which encourages individuals to engage in retirement planning.”

Houston said employers may feel reluctant to add or expand retirement plan offerings because they think their company is too small or the administrative expenses are too high—but he argued that there are many affordable options.

“We have an employer-based system which is trusted,” he said. “We’ve got something good going for us. What we can’t afford to do is to ever breach that, and to have ourselves as an industry not doing what’s in the best interest of the participants and … plan sponsors, which is why the industry need to make sure it holds itself in check.”