Experts Predict Improved Retirement Plans

August 9, 2011 ( - The defined contribution plans of 2015 will be better-suited to help participants achieve a successful retirement, according to experts responding to Diversified Investment Advisors’ Prescience 2015: Expert Opinions on the Future of Retirement Plans.

Automatic enrollment, now available in 50% to 60% of large plans, will be ubiquitous in 2015: experts predict that it will be available in nearly three-in-four plans. Automatic escalation, available in one-quarter of plans today, will be available in 43% of plans. Unless the standard automatic deferral rate is increased dramatically—to 12% or higher—the experts believe that pairing automatic enrollment with automatic escalation is critical to participants’ achieving a funded retirement.  

Not only will automatic enrollment be more common but Qualified Automatic Contribution Arrangement (QACA) safe harbors will be better-aligned with the contribution levels required to reach sufficient levels of income replacement in the absence of a defined benefit plan. Twenty-two percent of plans will offer a managed account as a QDIA, and slightly more than one-quarter of plans will offer retirement income guarantees of some sort.  

Five years of relative stability will lead to success for the retirement business. Plan sponsors gauge the value of the benefits they offer on their ability to help attract and retain talent. The budget they dedicate to their retirement plans is contingent on employee recognition of the value of these benefits. Prescience experts project good news on both fronts: 64% expect that retirement benefits will become more important in attracting and retaining hard-to-find talent and 63% anticipate that employer contribution budgets for defined contribution plans will surpass the 2008 level as a percent of payroll.  

Long-term growth for the retirement plans market is expected to resume between 2011 and 2015. The experts project that retirement plan assets will grow at an annual rate of 5.7% to reach $21.8 trillion by the end of 2015. At that time, the defined contribution plans sector will represent one-third of retirement plan assets, as it did in 2008.   

However, by 2015, 40% of employers with 5,000 employees or more will offer a defined benefit plan—active or frozen. Among the surviving plans, cash balance and pension equity plan types will prevail. Appreciation for defined benefit plans will improve greatly as their number dwindles. Thirty-six percent of plans in existence today will be frozen by 2015, and an additional 14% will be terminated.   

More than one-third of plan sponsors will outsource all retirement plan functions to a single vendor. Total retirement outsourcing and defined benefit plan administration outsourcing will remain most popular among employers with frozen defined benefit plans.

Legislative Changes  

Experts surveyed for Diversified’s Prescience 2015 predict that the Department of Labor will adopt new Qualified Automatic Contribution Arrangement regulations that will lead plan sponsors to modify plan designs for more successful participant retirement outcomes—yielding even higher contribution rates.  

A majority believe that the population eligible to receive the Saver’s Credit will expand, even though regulators will shy away from any change that will increase short-term costs to the federal government.  

Fifty percent of experts agree that Congress will pass new legislation expanding automatic enrollment safe harbors to allow default deferral rates above 10%.   

The Prescience 2015: Expert Opinions on the Future of Retirement Plans study examines trends in retirement plans with $25 million to $1 billion in assets. Sixty-eight retirement plan experts from 54 organizations answered the 181-question survey, including PLANSPONSOR Editor-in-Chief, Nevin Adams. Diversified chose survey participants based on their positions as thought leaders and experienced professionals in the retirement plans business.