ISELIN, NJ--(Marketwired - Jan 13, 2016) - The Institutional Retirement Income Council (IRIC), a non-profit think tank for the retirement income planning community, today released its list of top trends to watch in 2016. IRIC says there is a growing need for retirement 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.
"This will be an important year for retirement plan sponsors and the retirement income community," said William Charyk, President of IRIC. "The need for plan sponsors to help workers address their financial and retirement challenges has never been greater. We expect plan sponsors to broaden their wellness programs to include financial wellness initiatives and also take a closer look at ways to provide secure retirement income to participants."
IRIC identified the following four trends to watch for 2016:
Financial Wellness Initiatives: Employers will significantly expand their wellness programs that currently focus on physical wellbeing to include features that focus on financial wellbeing. Employees are facing increasing financial challenges for many reasons -- medical expenses, credit card debt, college expenses, and retirement planning. A 2014 SHRM survey reported that 70% of HR professionals predicted that baby boomers would likely participate in a financial wellness program if their employer offered one.
With heightened interest in retirement planning, there has also been a growing focus on accumulation for retirement. However, it is equally important to focus on how to spend down the nest egg to ensure sufficient ongoing assets for a comfortable retirement. Retirement and retirement income will play a key role in financial wellness programs. Employees currently have a wide range of "set it and forget it" tools (deferral calculators, auto increase features, target date funds, managed accounts, etc.) 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.
Out-of Plan versus In-Plan Retirement Income Solutions: Currently, it is not possible to predict the final content of the ongoing DOL project regarding the expanded definition of a plan fiduciary. The draft version of the proposed regulations would have characterized certain advice concerning the rollover of retirement plan assets into a rollover IRA as advice that would invoke fiduciary status. If this concept is reflected in the final regulations, a decline in IRA rollovers may occur as there will be fewer occasions where any initiative is taken to present the alternative to a retiring employee. Indeed, advisors will be reluctant or unable to assume the additional burden of providing out-of-plan advice particularly when one considers recent changes to their business and compensation model. Insurance companies that offer out-of plan options are expected to be especially hard hit. Those few that continue to offer such options will almost certainly shorten the list of products that they are willing to recommend to their clients, for fear of not meeting the more demanding DOL standards.
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 advisors 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.
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 work force, 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. A recent P&I survey found that "adding a retirement income solution to defined contribution plans is at the top of the wish lists of both plan executives and other industry members."1
Comparative fact sheets will become more available to help review solutions so a plan sponsor can document the selection process and monitoring process. Plan sponsors can visit the IRIC website and access examples of comparative fact sheets.
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.
About The Institutional Retirement Income Council
The Institutional Retirement Income Council (IRIC) is a non-profit, membership-based organization of industry advisors who are dedicated to sharing best practices, informing about legislative and regulatory issues, and facilitating solutions for plan sponsors and their participants. IRIC's mission is to facilitate the culture shift of defined contribution plans from supplemental savings programs to programs that provide retirement security. By providing a forum for insightful, solutions-oriented thought leadership on institutional retirement income, IRIC is promoting the need for retirement income adequacy for defined contribution plan participants. For more information, visit www.iricouncil.org
1 Survey conducted by Rocaton Investment Advisors LLC, Norwalk, Conn., and Pension & Investments.
Contact Information:
Contact:
Ed Emerman
609-275-5162
eemerman@eaglepr.com