PSNC 2016: CEO Roundtable

Leaders at Morningstar, BlackRock and John Hancock discussed retirement industry trends and challenges.

The second day of the PLANSPONSOR National Conference in Washington, D.C., kicked off with a panel of long-time retirement industry thought leaders, asked to describe the main challenges that face retirement plan sponsors and the defined contribution (DC) plan industry more broadly.

The esteemed panelists included Brock Johnson, president of retirement solutions for Morningstar; Anne Ackerley, head of U.S. and Canada defined contribution business for BlackRock; and Peter Gordon, CEO of John Hancock Retirement Plan Services.

The panelists all have decades of experience in the industry, but all three agreed that right now is among the most exciting and fast-moving times they have seen for the DC world. Johnson was quick to note that, at least at his firm, retirement is “clearly the quickest growing business we have.” The others agreed, noting their firms’ histories in serving the DC market.

“From our perspective at Morningstar, we have seen a real fundamental change in the way the retirement conversation plays out in the workplace and in our wider culture,” Johnson said. “At one time we were more focused, I think it’s fair to say, on supplementing the retirement income of wealthier individuals so they could live out their retirement dreams through savings in discretionary accounts.”

Today, something different is playing out for defined contribution plan providers and investment companies serving the space—and for plan sponsors.

“We see more and more that there is huge demand for something entirely different,” Johnson said. “As the DC world continues to take hold and become the normal approach to retirement planning, our industry is being called on to help people who are working toward a basic level of stability, not a retirement dream. It’s absolutely critical for providers and plan sponsors alike to grasp this and work toward it—to understand that this work is not a choice. It’s necessary.”

In other words, according to Ackerley, the DC industry is being called on to do what employer-run pensions used to do for many people. 

“The most important question we have to ask right now is, how do we as DC providers and plan sponsors get people saving earlier and saving more, and to stay in the right investment and to stay the course?” she asked. “Those are the three levers sponsors have, and we’ve already seen that auto[matic] features can be very powerful here. We need to push things even further.” 

NEXT: Accelerating toward an automated future? 

Ackerley cited the example of her own son joining the work force, to highlight the critical importance of automatic plan features in this new DC-driven paradigm.

“What really hammered home the importance of automatic enrollment for me was that my own son was not auto-enrolled in his plan,” she said. “He’s a bright kid, but I still had to push him for six months before he actually sat down at the computer and opened up an account and set a salary deferral. It’s a great example of how inertia still dominates this conversation and the solutions that are coming out on the market.”

Gordon suggested that the Department of Labor (DOL) fiduciary rule reform is only going to speed up all the trends that have been taking hold over the last 10 years, since the passage of the Pension Protection Act (PPA).

“I think that if one thing is clear, as we approach the 10-year anniversary of PPA, it is that these problems we are discussing at this conference are not issues that can be solved unilaterally,” Gordon said. “Nor can they be solved just with collaboration between sponsors and individual industry providers. To truly solve American’s retirement problem, it’s also going to take more collaboration and partnership between provider firms. Everyone will have to get in tune with this before the DC system can ensure a successful retirement for everyone.”

All three panelists predicted a future with far more partnership among providers—perhaps to improve portability and data sharing, for example—as well as a future where the line between “in plan” and “out of plan” continues to blur. They also predicted a significant impact from the financial service technology revolution sweeping into the DC space, along with the ongoing consolidation of recordkeepers and potentially other types of service providers.

“Recordkeeping is very much a maturing industry,” Gordon said. “Providers get bigger, and innovation advances and barriers to entry and to profitability increase, and that leads to real consolidation. You need scale and you need to make huge investments upfront to remain relevant as a recordkeeper today. This is a global issue. This same conversation is happening all over the world. I really do believe that most of the top 40 recordkeepers have decided they’re either in or they’re out over the next five years or so. Hopefully, it’s seamless for clients. I think it can be.”

For plan sponsors, right now is the time to address these concerns and get out ahead of all of it, the panelists concluded.