Last week, I asked NewsDash readers what developments they think most influenced the retirement plan industry in the past 20 years. Respondents were asked to select up to 10 they think are most influential.
The top most influential development—selected by 78.5% of responding readers—was the general move from a mostly defined benefit (DB) system to a mostly defined contribution (DC) system. This was followed by the move to daily valuation recordkeeping, which was selected by 64.6% of respondents.Other big influencers were the Pension Protection Act (46.2%); the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which increased contribution limits, allowed for catch-up and Roth deferrals, and introduce the $5,000 cash out rule (43.1%); the Enron collapse in 2001 (41.5%); and IRS Revenue Ruling 98−30, giving approval for employers to make “negative elections” (i.e., automatic enrollment) into 401(k) plans for newly-eligible employees (35.4%).
Other developments on the list received the following votes:
- Company stock litigation – 13.8%;
- Excessive fee suits/Revenue sharing suits brought by Schlicter – 9.2%;
- Market-timing investigations by Elliot Spitzer beginning in 2003 – 9.2%;
- Steel industry and/or airline industry bankruptcies – 9.2%;
- Court lets stand presumption of prudence cases (Gray v. Citigroup Inc. and Gearren v. The McGraw-Hill Companies Inc.) – 3.1%;
- Court lets stand decision that cash balance plan is not discriminatory (Walker v. Monsanto Co. Pension Plan) – 21.5%;
- Supreme Court decision that individual participants can sue for fiduciary breach (LaRue v. DeWolff) – 15.4%;
- Supreme Court ruling that COLAs must be included in pension lump sum benefit calculations (Rohm & Haas) – 7.7%;
- IRS anti-cutback rules in 2005 for early retirement benefits or subsidies, directed by EGTRRA – 1.5%;
- Supreme Court May 2011 decision in CIGNA v. Amara remanding appellate court ruling telling CIGNA to amend its plan to conform with participant interpretation of SPD, and allowing for a surcharge to constitute make whole relief – 1.5%;
- The Small Business Job Protection Act of 1996 (SBJPA) – 3.1%;
- Sarbanes-Oxley Act of 2002 (also known as the Corporate and Auditing Accountability Responsibility and Transparency Act of 2002) – 23.1%;
- 409A nonqualified deferred compensation regulations – 10.8%;
- 2007 403(b) plan regulations – 7.7%;
- 404(a)(5) fee disclosure to participants – 12.3%; and
- 408(b)(2) fee disclosure to plan sponsors – 15.4%.
Responding readers could also submit their own suggestions for the most influential industry developments in the last 20 years. The included the introduction of target-date funds; increasing use of the Internet; The Great Recession of 2008, the “continued regulatory assault on DB plans,” TRA'86, historically low discount rates, participant-directed and the Department of Labor’s Advisory Opinion to SunAmerica about advice.
In verbatim comments, responding readers made very good points—positive and negative—about the changes over the years. But, I have to give Editor’s Choice to the reader who offered PLANSPONSOR birthday wishes: “Happy Birthday, "kid". Stick around. But remember, some of us have been here long enough to have forgotten more than you know.”Thanks to everyone who responded to the survey!
Every time there is a perceived abuse, Congress feels obligated to pass a law to fix the problem. Thankfully, the courts seem to be getting smarter.
The advent of internet research and instant access to market/investment/plan information allows for greater participant knowledge.
The development of asset allocation models and target-date funds has allowed participants to invest in well diversified portfolios without having to completely understand the complexities of Modern Portfolio Theory. This has led to better overall investment performance over time.
The ostriches (aka employees) have awakened from their sleep and begun to realize for better or worse they own their retirement.
The shift from DB to DC has been the single largest change which essentially led to most of these other options listed here. It also was not a change for the better in my opinion. Employers simply pushed most (if not all) of the responsibility onto the employee for retirement and effectively washed their hands of it.
Proposal for another impact to industry: Government allowance of Notices to participants to be written in plain and simple language that actually tells what the Notice means thus freeing up hours a day for benefit managers from participant phone calls asking "what does this mean?" and providing them time to do their real jobs.
Happy Birthday, "kid". Stick around. But remember, some of us have been here long enough to have forgotten more than you know.
I think the two most important developments, in a way, counteract each other. First the general move from DB to DC and then PPA of 2006. PPA put into law automatic features, enrollment, default, and escalation. It is only a matter of time before we have auto distribution at retirement. Thus showing a general move from DC to DB-like DC plans.
I'm sure you'll get a lot of hand-wringing about the move from DB to DC. God knows, I'd love to be able to have made the job changes I've made over my career AND have a pension that I didn't have to pay into (though many public sector workers do pay in to theirs). But the reality about tenure and vesting is that most of the people who were, for whatever period of time, covered by a pension never stayed long enough to actually "get" that pension, certainly not the type/amount for which so many still pine. Wishing that we could restore the time of the DB plan is like looking back fondly at an old beau who was never quite as endearing in real life as he/she lingers in our memory. Blame the accountants if you will (and they certainly had a large hand in this), lawmakers and regulators for their clumsy attempts to "save" these programs (some doubtless complicit in their "true" impacts), the Fed for artificially constraining the interest rates that wreak so much havoc on DB funding, and employers if you must - but mostly the "blame" lies with... us.
I think they have moved in the direction of making individuals more responsible, when individuals are generally poorly prepared to make long-term retirement judgments. If Congress had not played so many revenue "games" with deductions for pension plans, I wonder if the move to DC plans would have escalated to this level. The combo of both a guaranteed pension and a savings account is still the best approach to retirement. I like the move to TDFs and professionally managed fund options and that has promise for helping participants prepare for retirement.
Overregulation and increased PBGC fees killed DB plans. Now the regulations are multiplying for DC plans. I hope the government will back off before killing the DC plans too.
Can we please do away with non-discrimination testing, which benefits no one?
While at the outside of your 20 year window, I think it was not so much daily valuation that changes things, but the accompanying notion that record keeping was "free", which is to say that the fees were all imbedded (and thus, more or less invisible), and borne by participants. Not that they weren't already paying 70% in that manner, but I think that affected how plan sponsors chose their recordkeeper for a number of years. And that matters, even today. Our 401k system was basically designed - and funded - in a manner convenient to the mutual fund industry.
NOTE: Responses reflect the opinions of individual readers and not the stance of Asset International or its affiliates.