New Year Brings Both Novel and Familiar Industry Challenges
From accelerating provider consolidation to the persistent retirement plan coverage gap, there are no shortage of issues for the retirement plan industry to tackle in 2022.
A recent panel discussion hosted by Vestwell explored experts’ predictions for what retirement plan industry practitioners can expect in the new year. The panelists also answered questions about new trends and identified those that would be best to get ahead of.
Among the speakers on the panel discussion was Fred Barstein, founder and CEO of The Plan Sponsor University (TPSU) and The Retirement Advisor University (TRAU). In Barstein’s view, retirement industry consolidation has been an important topic for several years now, and it will continue to be so in 2022. He said consolidation will persist among both retirement plan advisers and recordkeepers and other service providers. Though the industry has not yet reached this stage, Barstein said there could be a point in the future where dwindling competition could lead to a lack of innovation, as firms in a highly consolidated industry would have to work less hard to differentiate themselves.
Barstein said retirement plan sponsors and advisers must be mindful in 2022 of the impact that ongoing consolidation will have. There seems to be an intensifying battle over “who has the right to service or monetize participants,” he warned.
On the other hand, Jeanne Fisher, Strategic Retirement Partners managing director, said recordkeeper consolidation does not concern her, and she sees it as a fruitful opportunity to improve outcomes as recordkeepers add scale and consolidate their resources. She also said she feels concerns some parties raise about protecting participant data and ensuring adequate competition are reasonable, but they should remain in check for the foreseeable future.
Fisher said there is no doubt that a retirement plan coverage gap exists, and it is up to industry providers, not just employers, to find a solution for this problem. Most employees who lack access to a retirement plan are not asking for one, she noted, simply because they don’t realize their lack of access is a serious problem for their financial futures.
The panelists said they anticipated that pooled employer plans (PEPs) could help address the coverage gap in 2022, but this marketplace is still just getting started.
Heading into next year, there is also a lot of demand to modify defined contribution (DC) plans and complement them with guaranteed retirement income solutions, but there are a few reasons why this isn’t happening at a wide scale just yet, Barstein said.
He noted that PEPs currently have issues with transferability when the plan sponsor moves from one recordkeeper to another, and many recordkeepers are not always willing to accept annuities offered by another provider. It is expected that legislative developments, including automatic portability requirements mandated by the Setting Every Community Up for Retirement Enhancement (SECURE) Act, could help address this problem, but the speakers said this is an evolving topic.
According to the experts, financial wellness is increasingly seen as a critical solution to help workers and retirees meet their goals. There is a growing recognition among may in the retirement plan industry that the retirement savings gap is unlikely to be erased without improving the shorter-term financial wellness, resiliency and well-being of those enrolled in DC plans.
In a related trend expected to continue in 2022, employers are struggling to recruit and retain workers, many of whom are looking for new opportunities. For a variety of reasons, the competition for labor is more intense than ever, and the situation shines a spotlight on the need for employers to offer more competitive benefits, including those tied to comprehensive financial wellness.
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