fiduciary governance

2024 Trends in Retirement Plans

As we step into 2024, the world of retirement planning continues to evolve. It’s a great time to look ahead and understand what will guide us in improving retirement outcomes for our clients and their participants. This year, we expect to see a mix of familiar trends from the Secure Act 2.0 and new focuses on personalization and financial wellness. Also, we’re keeping an eye on how the economy will influence our strategies, especially with the upcoming election and the Federal Reserve’s actions against inflation. Here are the major themes we are working on this year:

1. Secure Act Updates

Changes continue to be implemented with the passage of the Secure Act 2.0. Some changes were delayed such as the Roth Catch-up requirement which will take place after 2025, however, there are some mandatory and optional that we are focusing on.

Long Time Part Time Employees.

Employers will now be required to allow long-time part time employees to defer into their 401k if they have worked at least 500 hours of service in each of three consecutive 12 month periods and have attained age 21. That requirement is reduced to two consecutive 12 month periods for plan years after 2025. Additionally, for plan years after December 31, 2024, 403b’s will be required to adopt these new provisions.

Matching contributions on student loan payments

Starting this year, Retirement Plans may treat certain student loan payments as plan contributions for the purpose of match contributions. This provision may mean that employees who make qualified payments on student loans can receive a match even if they were not able to contribute to their plan.

Emergency savings accounts linked to retirement plans

Starting in 2024 the Secure Act 2.0 allows for plan participants to make pre-tax payments to a linked emergency savings account up to $2500 and withdraw up to $1000 without penalty. Providing access to participants to emergency savings when they need it and still save for retirement could help alleviate the anxiety of saving in a retirement plan for lower income workers.

The Secure Act has many other provisions being implemented in 2024 as well. It is important that you discuss with your Administrator to ensure compliance.

2. Personalization

A key area of improvement in the defined contribution space is the increase in levels of personalization at the participant level. By using key demographic information already known by the plan and information received directly from plan participants, 401k and 403b providers can create personalized saving and investment plans for employees at scale. Our approach to personalization is to utilize a tiered approach depending on the level of engagement from plan participants.

Plan-level personalized reporting and engagement

Often times participants are disengaged or recordkeepers don’t have the necessary technological solutions for detailed personalized planning. When that happens, we are finding innovative ways to use readily available plan demographic data to create personalized reports. This strategy enables us to identify participants who need help, so we can proactively reach out to them.

Increased use of Managed Accounts for engaged participants

When participants are engaged and the recordkeeper has appropriate and cost-effective technology solutions, managed accounts can provide an advanced level of personalization for retirement savers. Managed accounts allow professional third-party management of a participants retirement account based on demographic data and input from engaged participants.

When utilizing managed accounts in a retirement plan it is essential to monitor the program to ensure that participants who are paying extra for the service receive additional value through personalization.

3. Focus on Financial Wellness

Technology improvements and engagement

In 2024, there’s a heightened focus on financial wellness within 401(k) and 403(b) plans. Technological solutions are playing a key role, offering sophisticated tools that provide a comprehensive view of an individual’s financial health, including retirement readiness. More providers are entering the market increasing engagement and reducing costs. These new tools are increasing engagement and helping participants create healthier relationships with their money.

Retirement Income hits the mainstream

There is a growing momentum for in-plan retirement income strategies. Plans are increasingly incorporating features that help participants transition their savings into a stable income stream for retirement, addressing concerns about outliving their resources. This shift underscores the evolving role of 401(k) plans from mere savings vehicles to comprehensive retirement planning tools.

As the retirement income market evolves, platforms and investment managers are creating innovative retirement income products at lower costs to benefit more participants.

4. Economic Disruption

The 401(k) landscape in 2024 is also navigating through economic disruptions. The influence of the Federal Presidential election is sure to be contentious and could potentially mean social and economic disruptions through the 2024 election season. 

Furthermore, the Federal Reserve’s efforts to achieve a ‘soft landing’ amidst economic uncertainty are crucial. The Fed’s monetary policies, aimed at stabilizing inflation while avoiding a recession, play a significant role in shaping the investment landscape. Participants and plan sponsors must stay vigilant, adapting their strategies to these evolving economic conditions to safeguard retirement assets.

Conclusion

The 401(k) and 403(b) landscape in 2024 presents both challenges and opportunities. Staying informed and adaptable is key to navigating this dynamic environment. Whether you’re a plan sponsor or a participant, understanding these trends is vital for making strategic decisions that secure a comfortable retirement.

Evaluating Your Fiduciary Process

Evaluating Your Fiduciary Process

Believe it or not, an efficient retirement plan committee does not happen by chance. The “best practices” your committee upholds form the foundation for a prudent fiduciary process creating an opportunity for employees to pursue their retirement goals. Companies of any size can benefit from a consistent process and should consider implementing a few of the tips below.

Evaluate What’s Established

If you have a company 401k plan and you are on the retirement committee, then you are a plan fiduciary. As such, you have many duties and responsibilities to uphold to help support plan compliance to the benefit of your company and the plan participants.  This is a great opportunity. However, is there more you can do to help limit liability and create a track for retirement readiness?

It’s more than likely you have a process in place to monitor and manage the company retirement plan; but with this process in place, have you been able to:

  • Measure the success of your plan?
  • Evaluate provider relationships and plan services and fees?
  • Limit liability?

If this doesn’t evoke a confident answer, let’s take a step back and review how you can create a repeatable process.

Process, Process, Process

Creating a repeatable process can help limit liability by demonstrating that you have carried out your responsibilities properly by documenting the procedures used and the thought process involved to fulfill your fiduciary duties.[1] Additionally, a well put together and effective retirement plan committee is the foundation of successful fiduciary decision-making and organizational risk management for plans of all sizes.[2]

Choosing the right team

First things first, who is on your team? If you’ve assembled a committee team, it may include a business owner, CEO, CFO, President, Human Resources Managers, and/or other professional colleagues. Surprisingly, members of your retirement plan committee don’t need to be experts in retirement or investing; however, they should be committed to the task and have a reputation for making good decisions.2

Documenting

Within your team, you must delegate roles and begin documenting all plan actions and why they are prudent. Proper documentation serves as proof that the committee’s responsibilities are being prudently executed.[3]

Here are some of what the retirement plan committee’s minutes should include:3

  • List of all party’s present with identification of roles
  • Description of all issues considered at the meeting
  • Documentation of all materials reviewed during the meeting
  • Documentation of all decisions made and the analysis and logic supporting each

Identification of any topics to

The Prudent On-going Process

Once your committee is in motion, it’s time to start the on-going process of monitoring, reviewing, and evaluating information. When you review your company retirement plan, create a checklist of the following:

  • Gather all plan related documents
  • Create folders
  • Read through and understand the information
  • Ask team members to assist if needed

Once the delegated committee member has reviewed the plan, it’s time to evaluate provider relationships and plan services. Consider evaluating retirement readiness, plan administration, costs, investments, and service providers.

As your committee monitors the plan, ask yourself and the team members one important question: How could you make your company’s retirement plan offering better? Some suggestions could be fiduciary advisor investment review, fee benchmarking, auto enrollment, and auto escalation.

Maintenance within the Retirement Committee

Providing Fiduciary Training

As mentioned, your committee isn’t required to have retirement and investment experts. That being said, it is crucial to provide fiduciary training so they can be educated and fully equipped to serve on the retirement plan committee. Key areas to cover should include the definition of a fiduciary under ERISA, the basic duties and responsibilities required, fiduciary best practices, investment considerations and prudent process, and an overview of current legal and regulatory trends.[4]

How Often Should a Committee Meet per Year?

Industry experts suggest meeting 2-4 times per year: formal meetings should occur on a regular basis and should not take more than 1-2 hours if well-organized.4 Scheduling meeting at the beginning of the year tends to be effective for all parties.  One idea is to pre-schedule and put the placeholder dates on their calendars so you have the meetings calendared and set for the year.

Looking Forward

Why should you evaluate your fiduciary process? As retirement plan committee members, you want your employees to reach a successful retirement, so always focus on the outcomes. Additionally, having a compliant plan can limit your liability as a plan sponsor. Lastly, ERISA is about process! The committee needs to keep repeating, refining, and improving the company’s retirement plan; because at the end of the day, you want all of your employees to win at retirement.

 

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