‘Total Financial Wellness’ Expected to Increase in 2024

The concept of retirement savings has broadened over the last year beyond just contributing to a retirement account. Plan sponsors are increasingly including financial wellness advice and offering non-retirement benefits such as emergency savings and student loan repayments as part of their overall packages. 

David Stinnett, a principal in Vanguard and its head of strategic retirement consulting, says he thinks 2024 will be “another year of positive trends.” 

“We expect it to be another year of maturation of the concept of total financial wellness,” Stinnett says. “I think that’s only going to pick up tempo in 2024 because of the SECURE [2.0] Act [of 2022] provisions.” 

In addition to mandatory provisions that will go into effect in 2024, such as the end of required minimum distributions for participants in Roth 401(k)s, several of the optional provisions in SECURE 2.0 will also go into effect. These include the option for plan sponsors to offer matching 401(k) contributions for those making qualified student loan payments, as well as two types of emergency savings accounts. 

“I think plan sponsors … are always reviewing their suite of employee benefits to make sure not only that they’re effective, but also that they are competitive and useful in attracting and retaining the workers that they most want to have,” Stinnett says. “I think, given the prevalence of student loan debt among the American workforce, that is [a benefit] that [plan sponsors are] going to have a lot of focus on.” 

Stinnett says plan sponsors have been reaching out to Vanguard in the past year, asking how to add the optional provisions and what administrative steps they need to take.  

Additionally, while the IRS granted sponsors a two-year extension on implementing the mandatory Roth catch-up contributions, Stinnett says it is important that plan sponsors prioritize this provision before allocating resources to the optional provisions.  

Increased Personalization 

Another trend Stinnett predicts will continue in 2024 is increased personalization when it comes to plan design and the investment menu, in particular the concept of the tiered investment structure. 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. The goal of such a system is to maximize participant engagement by communicating the desired investment options to targeted groups of participants.  

“Many participants at this point don’t even get to that stage,” Stinnett says. “They are defaulted into target-date funds, and that’s where they stay. … But for those who don’t want to be defaulted [and] who want to invest the time to select [investments] for themselves, having tiered investment structures is critical.” 

Stinnett says it is equally important that plan sponsors offer a low-cost, financial advice service to increase personalization, which he also predicts will be a continuing trend for 2024. 

“You get a much better result, both from a financial standpoint, as well as an emotional standpoint, if you have personalized information on the advice service,” Stinnett says. 

Expansion of Auto Features 

In recent years, more plan sponsors have adopted features like automatic enrollment and automatic escalation into their plans. Stinnett says these features have allowed more people to participate in retirement plans, saving more than they had the year prior. 

“That’s why I look at 2024 with a lot of optimism,” Stinnett says. “We’re seeing the continuation of these very good trends: higher participation rates, higher savings rates, higher rates of participants investing in a target-date fund that gets them proper asset allocation [and] lower rates of exchanges and trades so people aren’t panicking and moving between asset classes. … If we happen to have more market volatility next year, these trends are especially helpful when that happens.” 

However, there is always room for improvement, and Stinnett recommends that plan sponsors focus on two goals for the new year: getting participants to save more and investing in personalization. 

Stinnett says the average participant should be saving, with the help of employer contributions, between 12% and 15% of their salary per year to meet their retirement goals. He says plan sponsors should be focused on advocating for any programs that help people save more. 

He adds that a growing number of American workers want a personalized approach to retirement planning, and Stinnett advocates for offering a low-cost managed account solution that enables participants to tailor their investments to their personal needs.