5 issues facing the retirement market in 2012
In 2011, companies began to restore matching employees 401(k) contributions. The chief executive of ASPPA, Brian Graff, says that his organization is enthusiastic that companies are reconsidering their match levels because its clear that most Americans are not saving sufficiently for retirement and the match is a critical way to get them to save more.
And in 2012, Bill Harmon, senior vice president of 401(k) sales at Great-West Retirement Services, believes that even more companies will restore matches, as its a recruiting tool. I believe its going to be these headlines that say large corporation started their match back up that will start that sense of competition again, he says. Now granted, we also need unemployment to go down again to say that we need this sense of competition. But when those two storms come together and I really dont believe were far away from it ... then youre going to see this.
One new product to look out for in 2012 is multi-employer plans, Graff says, adding that there is a lot of discussion about multiple employer plans and a lot of providers who are developing products related to them. Yet, he warns there are some legal uncertainties surrounding MEPs and the big question is going to be if the Department of Labor is going to address them in some form, and that could have some impact on those products. The industry will be watching for those regulations closely, he says.
The exact definition of fiduciary duties is a huge issue, Graff explains. One new issue is the extent to which the re-proposed regulation will apply to rollovers and what kind of impact that will have on the ability of service providers to talk to participants about rollover opportunities, he says. Theres a great deal of concern that it could inhibit the ability of providers to talk to participants and that could [lead] to leakage.
Another new product to look out for in 2012 is plans on auto pilot. One element of that, Harmon says, is more automatic enrollment to get employees in, followed by auto escalation on behalf of the employer. The majority of plans start auto enrollment at 3%, but that is so low and not even close to what they need to do, says Harmon. He explains that 75% of auto-enrollment plans also offer an auto escalation, so then they will increase that percent 1% a year up to a designated maximum and then they say, Now that Ive got you in, enrolled and you are increasing that to what will slowly get you to the right deferral rate, Im going to auto-allocate your investment to make it nice and easy to create the appropriate asset allocation.
Another element, which is just now becoming more popular, is auto spend down. So now Ive got myself to this designated desired number and Im ready to retire its the giant now what? he says. Our industry has been so focused on accumulation that now the products and services are being designed to say, lets talk about the spend down, how to make sure I dont run out, and theres products and services now that can do that.
So much dysfunction in Congress and the 2012 election are going make tax reform a long shot, says Larry Goldbrum, General Counsel of The SPARK Institute. But he believes that while there is talk about looking at 401(k) tax incentives as a means for dealing with deficit reduction, I think there is still some very very strong support [for the incentives] or there would be opposition to anything like that, he says.
Ron Hagan, chairman of the board of Investment Fiduciary Leadership Council, adds that there should be no change before the 2012 election, as its almost too late in Obamas administration, we believe, for there to be any consequential change in tax law related to defined contribution plans before the election, he says. If we have a change in administrations next fall, whos going to know what happens then.
From 401(k) matches to the definition of fiduciary, 2011 was a busy year in the retirement industry. Experts reflect on the biggest developments and whats ahead for 2012.