Slideshow 4 retirement trends to watch in 2016

  • January 25 2016, 11:11am EST
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There is a growing need for plan sponsors to help participants with retirement readiness and securing their financial future. This will drive plan sponsors to expand their financial wellness initiatives and evaluate retirement income solutions for their defined contribution plans, according to the Institutional Retirement Income Council.

Here are four trends the IRIC has identified for 2016:

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1) Financial wellness initiatives

Employers will significantly expand their wellness programs that currently focus on physical well-being to include features that focus on financial well-being. Employees currently have a wide range of “set it and forget it” tools available to assist in the accumulation of assets, but decumulation tools are still in their infancy.

Managing assets going into and through the early stages of retirement requires careful planning. Incorporating social security planning and education on in-plan and out-of-plan products and features into financial wellness programs will become more common. This type of education helps the employee feel more comfortable in approaching retirement.

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2) Out-of plan versus in-plan retirement income solutions

A recent study published by the Center for Retirement Research demonstrated that IRA rates of return were 0.9% below those of defined contribution plans, naming higher retail fees as a main contributor to the gap. Demonstrable performance discrepancies such as this, that highlight the institutional product advantage, will make it all the more difficult for advisers to recommend moving out of a defined contribution plan to those eligible to keep their assets in the plan.

In consequence, it seems likely that we’ll see a greater tendency to leave assets within the retirement plan vehicle. This should cause an increase in participant interest in investment vehicles that provide solutions to the draw-down, rather than accumulation, of retirement assets.

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3) Revisit of in-plan retirement income solutions

Plan sponsors that have not recently revisited an in-plan solution will be more inclined to do so in 2016 since the landscape is very fluid and new solutions appear often. Plan sponsors have a fiduciary duty to review offered investments on an on-going basis.

As the aging of the population impacts the workforce, more focus will be addressed toward the distribution phase. If a plan has not explicitly considered this focus, it will face participant demand to consider new solutions to address the risks of retirement income sustainability, longevity risk, market timing risk and in-plan distribution options.

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4) In-plan distribution flexibility

As awareness of retirement income issues increases, plan sponsors will be inclined to review the distribution options for terminated participants. If a plan currently only offers a choice between a lump sum distribution and keeping the entire balance in the plan, the plan sponsor may be inclined to conduct a review as to the feasibility of offering periodic withdrawal opportunities to maximize the amount of assets that can remain in the plan (and possibly provide some fee savings opportunities with respect to plan administration).

The plan sponsor should first check the plan document. If the plan is a prototype, the plan sponsor may be bound by the limits of the adoption agreement. The plan sponsor should also check with the vendor to see how the administration of periodic withdrawals would actually work.

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