As American Retirement Association CEO Brian Graff likes to say, “The 401(k) is a savings plan!” Through the end of 2021, NAPA and our parent association, the ARA, has worked continuously with retirement industry stakeholders and policymakers on ideas and proposals to further expand and enhance workplace savings and retirement programs to provide the opportunity for more individuals and workers to have access to a retirement savings plan.
With advice and counsel delivered by ARA, significant legislation was drafted to expand retirement plan coverage, incentivize companies to create plans, and reduce the hurdles and barriers to plan creation and ongoing plan compliance and management. Those proposals were included in the “Build Back Better Act” reconciliation package. Unfortunately, however, they were stripped from the package in late October. The proposals represented a significant opportunity for both America’s workers and our industry, creating an estimated 51 million new retirement savers. While disappointed, we remain optimistic that this major initiative is a “when” not “if” proposition, given the education ARA and its members have provided to policymakers.
In the meantime, there is still a tremendous amount of value that we can collectively deliver to our clients, their employees, and our country’s workforce. One of my primary goals as a retirement-focused advisor and President of NAPA is to help more people get down-to-earth, meaningful guidance and advice to improve their financial know-how and achieve financial security.
As an industry, we know that the workplace is a native environment for individuals to get access to this type of financial education, or “financial wellness”—whatever term you prefer to use. While there is plenty of room to debate the definition of financial wellness or the “right” service model to deliver these services, the fact remains that most people will only get access to financial education, wellness, and/or advice through their employer’s workplace retirement plan.
That’s where the quote about “the 401(k) is a savings plan” becomes so relevant. Today, employees are asking for help with their full financial picture—and retirement plan advisors, vendors and service providers are delivering. In the last 5-plus years, services have expanded beyond the retirement plan’s investment mix and deferral elections to a much broader scope of personal finance—and I believe that this has been a tremendous benefit to everyday savers. In fact, we should be delivering more of these financial wellness and advice services—providing independent and objective (and, as possible, fiduciary) advice to help employees with the biggest and toughest money decisions in their life.
With this philosophy, the 401(k) expands from just a savings vehicle for retirement to a savings vehicle (either directly or indirectly) for life’s other financial milestones—such as building emergency savings, paying down debt, saving for health care expenses, etc. Not all of these services will be built directly into the 401(k) (or 403(b)), but retirement plans will serve as the chassis to help employees make wise financial decisions across their entire financial picture.
The last two years have been a transformative period in many ways. Among all the things that changed in 2020 and 2021, one revelation we have witnessed is a larger number of planned and anticipated retirements across our clients. As advisors who specialize in delivering individual financial coaching, we realize that a large portion of our clients/401(k) savers who have done well saving for retirement are now in significant need of help turning their 401(k) into retirement income for the rest of their life. Most of these 401(k) savers don’t, and won’t, have access to their own financial planner or advisor, for a lot of reasons. But they need help!
I expect that the next major initiative for our industry to tackle is how to provide for this need. Of course, this isn’t new. There are products that already provide guaranteed income, such as guaranteed withdrawal solutions, annuities and other income-oriented products. However, I anticipate that the interest and utilization of these products will increase in the future. Therefore, the transparency, complexity, disparity in offerings and portability will all be analyzed and debated heavily, and ultimately addressed—as we see the 401(k) evolve into: (1) a savings program, (2) a financial wellness platform, and (3) an income program for America’s workers.
Alexander G. Assaley, III, AIF®, is the Managing Principal at AFS 401(k) Retirement Services, LLC in Bethesda, MD. He is NAPA’s 2021-2022 President. This commentary originally appeared in the Winter issue of NAPA Net the Magazine.
