Rothification, AI Advancements Among Expected Retirement Plan Trends for 2025

Looking ahead to the new year and the beginning of a new regulatory environment, Amber Brestowski, head of institutional investor advice and client experience at Vanguard, shares predictions about retirement plan trends that plan sponsors should be aware of in 2025.

Tax efficiencies, an increased focus on Roth contributions, and the use of artificial intelligence in retirement plan services are just some of the themes that Brestowski predicts will come into play in the new year.

Effective January 1, 2026, under the SECURE 2.0 Act of 2022, participants age 50 and older and who earn more than $145,000 can only make catch-up contributions via Roth. While this is another year away, plan sponsors need to ensure that they offer a Roth account ahead of this deadline.

“We really see these Roth contribution requirements [as] being an accelerant to have plan sponsors look at the tax efficiency of their plan,” Brestowski says. “By 2026, we think that nearly all, if not all, plans will offer Roth.”

Brestowski also predicts that in 2025 plan sponsors will continue to look at their plans as a destination for solving a participant’s holistic set of financial needs—beyond just saving for retirement. She notes that because of SECURE 2.0, plan sponsors can now offer benefits like emergency savings, student loan matching contributions and additional flexibility for in-service withdrawals.

“We really see the volume of solutions continuing to go up, [including] employer solutions that are focused on removing the financial barriers that get in the way of saving for retirement and helping participants solve for their whole financial set of needs,” she says.

In addition, Brestowski believes the use of managed accounts within 401(k)s will accelerate in 2025, as participants who use advice tend to be better savers and better allocated in their portfolios, she says. For example, Vanguard found that 20% of managed account users increased their savings last year alone, including a 7% increase within the first 30 days of using advice.

On the topic of retirement income, Brestowski says, in talking with plan sponsors, that there will be an increased focus on creating a “retiree-friendly” plan design. She says Vanguard continues to see an increase in the number of plans that allow retirees to take installments or partial distributions from their plans.

“When [participants] have more flexible withdrawal options, we find that retirees are 20% more likely to stay in the plan,” Brestowski says.

With AI increasingly offering tools to improve administrative efficiency, Brestowksi says Vanguard is looking at opportunities to use AI to boost the ability for its call center and service associates to help participants with their savings.

“As a recordkeeper, we’re sitting on tremendous amounts of data that can give us insights into a participant’s financial needs,” Brestowksi says. “With AI, we could serve those up to the folks that are serving participants.”

For example, if a participant recently had a child, Brestowski says Vanguard can prompt a call center associate to suggest that the participant recalibrate their financial goals in light of the new child or consider opening a 529 Savings Plan for the child’s education.

She adds that AI can help recordkeepers like Vanguard become more efficient in plan administration, as well as offer chat advice services.

Lastly, Brestowski predicts that auto features will continue to become the norm in defined contribution plans, especially as new plans must automatically enroll eligible participants starting January 1, 2025, under SECURE 2.0.

She says Vanguard is also looking into the issue of frequent job switchers losing out on savings due to, for example, being automatically escalated to a 6% contribution rate at their previous employer and then being defaulted back to 3% when they change jobs.

“There’s a world where a new employee can input their prior employer, and that [prior] employer can send in a data feed of the [participant’s] previous saving rate to the new recordkeeper,” Brestowski says. “I think it’s something that we need to tackle as an industry, because I don’t foresee the churn and job switching that goes on in our economy going away anytime soon.”

For more information on compliance topics for ERISA plans in 2025, click here.