By Jon Vogler
Retirement experts believe your 401(k) plan will take on a new look and focus over the next few years as the industry introduces changes aimed at getting participants to save more money and do more planning for retirement.
Anticipated Changes
To help executives responsible for retirement plan management evaluate their plans and strategies, Transamerica Retirement Solutions designed a study to provide insight into the industry’s future. As part of the study, 401(k) experts were asked to predict how workplace plans will evolve over the next five years. According to results released in November:[1. Transamerica Retirement Solutions, “Prescience 2017: Expert Opinions of the Future of Retirement Plans,” 2013.]
• The biggest change will be new emphasis on retirement readiness, focusing on actual retirement outcomes.
• In response to a demand for tools and resources customized to an individual’s retirement readiness, experts predict that by 2017, 59% of retirement plan providers will offer participants personalized reports that specify the amount of savings required for a fully funded retirement.
• The percentage of plan sponsors that automatically enroll employees will increase to 55% from 42%.
• Plan sponsors that automatically enroll participants at a deferral rate of 6% of pay or more will grow to 45% from 29%.
Other 401(k) trends anticipated by the study include:
• Further growth in the number of plans offering employees in-house advisory services.
• Websites optimized for mobile operating systems and mobile apps with advanced functionality to promote greater participant engagement — including retirement planning games — and to enable plan sponsors to communicate more frequently with participants in formats such as retirement readiness alert messages and calls to action.
The focus on retirement readiness also reflects the fact that defined contribution plans will be the key source of retirement income for many workers, aside from Social Security. That recognition is leading more plan sponsors to encourage workers to set specific goals for their 401(k)s.
From the Employers’ Point of View
Some employers are no doubt motivated by altruistic concern about the retirement security of their workers in offering these enhancements. But other considerations may be in play, especially the prospect of workers staying on the job past the point where they’re considered productive — which also increases health care costs for the employer. A recent Employee Benefit Research Institute survey found that 36% of workers expect to stay on the job past age 65, up from 11% in 1991.[2. Employee Benefit Research Institute, 2013 Retirement Confidence Survey.]
For both 401(k) participants and plan sponsors, change is imminent — and it’s necessary to help employees understand the critical role they play in planning and saving for retirement.
To read more great articles on retirement and much more check out the Invesco Blog.
Jon Vogler is a Senior Analyst, Retirement Research, at Invesco.
The information provided is for educational purposes only and does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
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