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Ed McCarthy | Dec 21, 2021
It’s time to dust off the crystal ball and ask retirement plan industry experts what they expect for 2022. WealthManagement.com asked several industry experts to share their insights on what 2022 might bring.
WealthManagement.com: What do you see as the most important developments plan consultants should monitor in 2022?
Global Chief Commercial Officer
Aon Wealth Solutions
We expect the number of PEPs (pooled employer plans) and the size of existing PEPs will continue to increase in 2022, which will continue to drive market efficiencies.
For defined benefit plan sponsors, we expect more pension risk transfers in a very competitive insurance market.
Also, defined benefit plan sponsors with underfunded pension plans likely saw increases in funded status during 2021 and recently passed pension funding relief leads to less short-term funding volatility. We expect allocations to return-seeking assets to increase accordingly.
Head of Retirement
Morgan Stanley at Work
Whether it’s RIA rollups or record-keeper consolidation, the industry continues to refine itself in the ultimate quest for scale. In 2022, retirement advisors and consultants will become increasingly aware of the growth of industry players’ end-to-end business models: Record-keepers are looking for more ways to monetize the participant base, while RIAs are migrating from pure institutional players to comprehensive wealth management shops. Both sides are seeking sufficient scale to increase margins. Partnerships between parties will be tested.
Finally, data will be increasingly scrutinized. As the retirement world embraces technology and with updated regulatory definitions, advisors and consultants must pay close attention to their outbound communications. Protecting the participant will continue to be critical and ensuring a robust data infrastructure will be table stakes for all retirement advisors. Subscale firms like small TPAs, smaller RIAs or even smaller record-keepers will likely struggle under the pressure of increased costs for cybersecurity.
Head of Institutional Investor Advice & Client Experience
In 2022, we expect plan sponsors and consultants will continue to support participants’ overall financial well-being beyond smart plan design, particularly through an integrated advice experience that is high quality and cost effective. Everyday decisions about spending, saving and debt are deeply interconnected and have a profound influence on employees’ ability to save for retirement. Advice must move beyond portfolio construction to provide solutions that address a participant’s overall financial well-being, such as capabilities to help pay down debt, save for emergencies and design custom drawdown strategies. As advice offerings evolve, we expect participant advice adoption to further accelerate as it offers financial and emotional value for participants across the board—from those just beginning their retirement journeys to retirees looking to spend with confidence.
Along similar lines, we also expect to see more participant level personalization that encourages investors to take action toward better financial health. Advanced technology is supplying plan consultants and record-keepers with stronger, faster insights, allowing them to understand the larger financial picture of each participant, and with these stronger insights, provide personalized guidance where it is most needed. Armed with this information, we anticipate more omnichannel participant experiences and optimized plan designs that further retirement outcomes.
Head of Defined Contribution Marketing
With 2022 being an election year, there should be a greater focus on passing retirement legislation. And while the Build Back Better plan includes several retirement provisions, this should be the year (finally) that the SECURE Act 2.0 becomes law. This bill would expand coverage and access for employees and includes key provisions that would require automatic enrollment for all new plans, provide additional incentives for employers and allow 403(b) plans to participate in multiple employer plans (MEPs).
Another key development beginning in 2022 is the requirement that retirement plans provide lifetime income illustrations to their participants, but there are still many assumptions that need clarification. 2022 should be a busy year for retirement plans and that brings about opportunities for financial professionals to help their plan sponsor clients and participants make sense of it all.
Head of Investment and Pension Solutions
Prudential Retirement Strategies
The pandemic has distracted employers’ and advisors’ emphasis on retirement income considerations in the aftermath of the SECURE Act. Heading into 2022, we expect to see a renewed focus on this game-changing legislation, which contained provisions that elevated the visibility of retirement income through disclosure requirements as well as safe harbor for use of income options. The market dynamics and regulatory environment have led to a product proliferation of new income solutions that address emerging risks in defined contribution plans.
On the defined benefit front, strong equity markets have driven the funded status of many corporate pension plans to around 100%. As a result, we anticipate the de-risking trend to continue after significant activity in 2021. With many plans having already executed lump sum programs and retiree buyouts, we see full plan terminations accelerating in 2022 and beyond. Due to the predicted increase in plan terminations, pension buy-ins may continue to increase in popularity. Buy-ins are convertible to a buyout and allow sponsors to lock in pricing and reduce exposure to capital market conditions and insurer capacity during the lengthy plan termination process.
Executive Director, Institutional Retirement Income Council and Principal of Fiduciary Insurance Services LLC
The DC income solution landscape is developing rapidly, with an increasing proportion of plan sponsors expressing interest in retaining plan participants through retirements, and an explosive amount of post-SECURE product development. The combination of these factors speaks to a need for retirement plan consultants and advisors to get educated on the DC Retirement Tier holistically, on the new generation of income solutions being introduced in the in-plan space and on what their responsibilities are in the process of evaluating these solutions. Rapidly shifting legislative priorities mean it still remains possible that SECURE 2.0, which, like SECURE 1.0, enjoys broad bipartisan support, could pass in the last days of 2021, though 2022 seems more likely. When considered in combination with other proposed retirement legislation that could also pass in 2022 and that, if passed, would massively increase the number of qualified retirement savers in our country, it appears we could be embarking on a dislocating moment in our industry. These inflection points in an industry always represent outsized opportunity for some, and material disruption for others. Rapid-fire consolidation among record-keepers and RPA/RIA aggregation firms only adds one more element of intrigue to what is likely to be an eventful 2022 in the DC space!
Plan advisors will continue to be impacted in 2022 by the headlines marking the end of 2021. We end the year with a new COVID-19 variant, ERISA-related lawsuits on the rise, and we remain in the midst of “The Great Resignation,” all of which significantly impact plan advisors, sponsors and participants.
Over 150 ERISA class action lawsuits have been filed over the past two years as the workforce endured a global pandemic. This suggests that employees took a harder look at 401(k) fees and returns as household financial pressures increased in light of COVID-19. In 2022, advisors will be more focused than ever on reducing this lawsuit risk wherever possible. Many ERISA-imposed obligations are actually in connection with terminated participants, who can and do participate in lawsuits. We anticipate advisors will monitor the results of pending lawsuits closely and, in parallel, look for ways to remove terminated participants from plans to reduce unnecessary risk posed to plan sponsors.
“The Great Resignation” and the tight labor market it has created will also keep financial wellness top of mind for plan sponsors. Advisors have started building and offering proprietary financial wellness packages—as have record-keepers. Advisors will continue to define their role in providing such solutions to their clients in response to increased demand among employees for more personalized and comprehensive financial support and guidance.
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