2018’s Top Five Retirement Plan Trends for Employers

It’s January… the time of year when we all make predictions for the next 12 months, and then, come December, either say “I told you so!” or pretend like we never said anything at all.

The good news is that we here at Summit Group have been working with retirement plans and employers for quite some time now, so we’re pretty confident we are on the “right” side of the Dunning–Kruger Effect curve when we make these predictions. Here we go…

1) Employers will continue to become more aware about whom is advising them and their employees.

Speaking of the Dunning-Kruger Effect, like in every facet of business and politics, retirement plan advisors (a widely-used title) can be plotted on every section of this curve – yet they all describe themselves as “experts”. It is up to the employer to ask the right questions and use their own cognitive abilities to confirm that claim rather than blindly relying on it.

Although partially delayed, the much discussed DOL Fiduciary Rule has, if nothing else, increased the level of awareness that employers have and given them additional methods to make this determination. In 2018, as this awareness grows, more employers will be asking:

  • “Do we truly have a retirement plan ‘expert’?”
  • “Are they providing fiduciary advice or are they outsourcing it?”
  • “Are they solely focused on our plan and the outcomes of the participants, or are they using the plan as a way to sell other services?”
  • “Whose ‘side of the table’ are they really sitting on?”

2) Employers will continue to add/enhance automatic-enrollment and automatic-increase provisions.

The research has been pretty clear. Automatic features can have a significant impact on the retirement outcomes of employees, and a workforce that is on track to retire (and less stressed as a result) is an invaluable asset to an organization. What has also become clear, however, is that these auto-features can do more harm than good if used incorrectly.

According to Callan, approximately 65% of plans currently offer automatic-enrollment. In 2018, we would not be surprised to see that number push 70%. In addition, as employers become more knowledgeable of these features and see their benefit, we expect more of them to:

  • Establish/adjust their automatic-enrollment levels to 5% or above. Lower default percentages can suppress good intentions, keep employees from ever saving enough, and provide no benefit to overall opt-out rates.
  • Add automatic-increase to their plan (the “jelly” to automatic-enrollment’s “peanut butter”). Passive savers will likely always be passive. By using automatic-increase, employers can help those passive savers use their inertia to their benefit rather than their downfall by defaulting them into a path of saving more in small, gradual increments.
  • Increase automatic-increase caps towards 15%. We hear the rule-of-thumb all the time – most of us need to save at least 12-15% throughout our working years to accumulate enough for retirement. Yet, for a large percentage of Safe Harbor 401(k) plans, they are required to cap their auto-increase program at 10% which could have a negative impact on some. A recent proposal in Congress is poised to remove this limitation, however, and allow plans the option to move this cap higher, among other much-needed enhancements.

3) More employers will launch holistic, financial wellness programs.

“Financial wellness” has certainly been a buzzword as wellness programs, in general, have gained traction. Financial wellness is specifically focused on venturing beyond the retirement plan and addressing the underlying factors that impact employees’ ability to save for retirement, such as debt management, budgeting, family money matters, estate planning, etc.

Employers are beginning to realize that the old “stock versus bond” presentations are boring, time-wasters that don’t move the needle. Employees want holistic, non-conflicted guidance to help handle the financial challenges they deal with on a daily basis. By addressing these underlying issues, impactful retirement plan savings can often be a natural result.

Many options to fulfill this need have surfaced over the past few years, and we expect a significant uptick in utilization as these programs become more accessible to plans of all sizes. The approach and degree of employee engagement can vary widely among programs. Some offer financial wellness assessments and educational video curriculums, while others offer gamification and unlimited access to independent Certified Financial Planners®. There is truly a solution for every organization. Just be sure you have your plan advisor involved in the process so you don’t get lost in the sales pitch. There is no standard definition of a financial wellness program; it is all about finding the right fit for your employees.

4) Employers will increase their matching contributions.

Following the recent historic tax reform, corporations are already reinvesting some of their tax savings back into their employees, especially in the form of additional retirement contributions. In the first few weeks of 2018, Aflac announced it would double its 401(k) match, while SunTrust announced it would add to its 401(k) contribution and provide a cash bonus for employees that complete their financial wellness program.

We expect to see considerably more of this in 2018 as companies continue to become more conscious of just how important retirement and financial planning is, not only for minimizing the stress of each employee, but also for the health and longevity of the organization as a whole. Although it can be difficult to quantify at times, it doesn’t take a Mensa membership to see the positive impact to the employer’s bottom line when their employees feel more confident about their finances and can retire on their terms. Fortunately, as a result of the new tax law, organizations will have a little extra money in their pocket to help them tackle this goal.

5) There will be a continued convergence of HSAs and retirement plans.

Health Savings Accounts (HSAs) have quickly made a name for themselves in retirement plan circles. By combining the triple-tax benefits of these often-misunderstood savings vehicles with the known power of 401(k) and 403(b) plans, one would certainly have the right to throw on a red cape and call themselves a “super saver”. The only things holding HSAs back from super stardom are the low contribution limits AND the oh-great-another-account-I-have-to-understand-and-manage syndrome. But we expect that to change, especially in 2018.

In fact, we are already seeing glimpses of this evolution as numerous retirement plan providers have begun integrating with HSA providers. As a result, the investment portion of the HSA accounts could be mirrored to match employee’s 401(k) investment allocation. It sounds simple, but being able to invest both accounts in one place with one investment allocation could certainly help clear a few big hurdles in the way.

There were even a lot of rumblings on Capitol Hill in 2017 regarding the potential increase in HSA contribution limits, as part of the larger health care reform discussion. These discussions will likely continue and, if this happens, HSAs could reach “blow up” status (a good thing), forcing employers to revisit the overall structure of their offerings in order to improve efficiency. Of course, if HSA savings continue to increase at the current rate, we wouldn’t be surprised if the Department of Labor (and ERISA) became more involved, requiring fiduciary oversight similar to retirement plans. We could also see stronger consideration given by legislators to somehow merge retirement plans and HSAs into one vehicle altogether – a potentially valuable method of simplification.

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