In the U.S. retirement savings system, progress has generally emerged first in the institutional market, through the innovations of some of the largest employers in their role as plan sponsor, before later taking hold in the broader marketplace and becoming industry standards.
Examples of this trend can be seen in the adoption of plan design best practices like auto enrollment and auto escalation, as well as investment lineup advances like white-labeling and the broad-based use of institutional investment structures like collective investment trusts and separate accounts.
The largest employers are well positioned to continue leading the next waves of innovation thanks to their scale, bargaining power and access to professional resources. However, ongoing fee and other fiduciary litigation may discourage such innovation going forward.
At the same time, the Defined Contribution Institutional Investment Association is seeing a tremendous increase in engagement from the retirement plan adviser community in the development of thought leadership on future best practices. This trend is a strong leading indicator that future innovations will come as much from RPAs and their clients as from the largest employers. It is also confirmation that we are in the midst of a convergence of philosophies and best practices across industry segments.
So what systemic problems still need to be solved as we move forward in our long-term journey toward retirement security?
When we survey DCIIA members from across the industry ecosystem — including mega plan sponsors in our Plan Sponsor Institute and advisers who work with smaller employers from our RPA Advisory Committee — we consistently hear that they are focused on a few common areas:
1. Changing the mindset on savings/accumulation to ensuring that retirement savings are ultimately delivering sufficient lifetime income;
2. Making sure the retirement savings system works for all Americans by closing coverage gaps and finding ways to reach those who have access to the system but are currently being left behind; and
3. Facilitating better outcomes through the institutionalization of the system.
The industry has been stuck in neutral on lifetime income for several years. Moving away from the search for a “silver bullet” solution and toward a more holistic approach can be an effective way to advance the conversation and shift toward greater implementation. To that end, DCIIA recently developed a series of brief white papers and related resources discussing in detail the concept of a “retirement tier” as a way for plan sponsors to deliver a range of products, solutions, tools and services that support the lifetime income needs of participants who are near, entering or in retirement.
Closing the coverage gap and making the retirement savings system more inclusive have been key areas of focus for DCIIA and the DCIIA Retirement Research Center. We are monitoring the potential impact of pooled employer plans alongside the expanding landscape of state Secure Choice programs. Emergency savings programs and a broader focus on financial well-being may be used to make the system more effective and inclusive.
Many major market players are betting on PEPs having a big impact in the micro and small plan markets. Some of the largest employers may be drawn to them as a way to reduce litigation risk and allow internal resources to focus on their core business. And based on recent conversations with several record keepers, it is clear that the integration of emergency savings programs will be high on their service enhancement priority list in the new year.
Finally, on the investment front, recent conversations about moving beyond a myopic focus on fees and toward a focus on value and driving better outcomes have been promising. While the fear of litigation still looms large, discussions around the potential to capture the benefits of illiquidity, democratizing access to alternatives, and the role of environmental, social and governance solutions are natural extensions of this broadening focus.
In the short term, all of this will likely take a back seat to managing through the continuing fallout from the pandemic. However, as we do that, it’s critical that we keep these long-term discussions going and remain focused on the ultimate goal of enhancing the retirement security of America’s workers.
Lew Minsky is president and CEO of the Defined Contribution Institutional Investment Association, a nonprofit association dedicated to enhancing the retirement security of America’s workers. To learn more, please go to www.dciia.org or visit us on LinkedIn and Twitter.