T. Rowe Price, in partnership with Schaus Group, is delighted to share insights on the future of retirement from our inaugural survey of the nation’s 20 leading defined contribution consulting firms, representing over 5,500 plan sponsor clients and $3.9T of assets under advisement. Our objective was to understand the view of DC consultants related to retirement and DC matters driving their business, market trends, and plan sponsor decisions.
To develop a deep and broad look at the ever-changing retirement landscape, we’ve combined this body of work with T. Rowe Price’s long-standing proprietary retirement research on plan sponsor and participant views. These retirement-focused insights strengthen the growing resolve that DC is now central, and well positioned for traction beyond, a conventional savings plan. Upon review of the aggregation of findings, we summarized the following key themes.
1. Evolution and turbulence—legislation, volatility, and shifting priorities drive change.
The retirement landscape has recently experienced seismic shifts in quick succession, shaking up a long run of slow-moving progress. The passage of the CARES Act and SECURE Act combined with market volatility related to the coronavirus pandemic have unsurprisingly resulted in a rapid pace of change and focus. The totality of these events has put plan sponsors on a whirlwind path of reorienting short- and long-term priorities. Our results show that consulting firms are rising to the challenge, including business model shifts, pursuit of efficiencies and scale, and expansion of services.
- After passage of the SECURE Act, consultant respondents indicated highest anticipation for expansion of coverage for new sponsors to join MEPs and lowest anticipation of participants to use in-plan annuities.
- After passage of the CARES Act, consultant respondents indicated high anticipation of adopting CARES Act features and developing communication campaigns to participants to stay the course.
- 79% of our consultant respondents expect retirement income solution services to be the highest investment service growth area in the coming year.
- 59% of our consultant respondents expect financial wellness programs to be the highest non-investment service growth area in the coming year.
2. Outcomes matter—longer time frames, risk perception, and retired participants inform decisions.
Consultants underscore the need to focus on outcomes. A successful path forward relies on designing DC plans to help participants meet future retirement income needs. This includes ideas for plan sponsors to more deeply evaluate key decision points, including the way they define risk, assess the QDIA, and determine their desired role in the retirement journey with participants.
- The majority of both plan sponsors and consultants rank longevity risk as either the #1 or #2 source of concern for participants in retirement planning.
- Our consultant respondents indicate that glide path evaluation has evolved to account for changing retirement needs, although 55% of plan sponsor respondents indicate they have consistently maintained their approach on glide path assessment or adapted their approach four or more years ago.
- 62% of participants rely on workplace retirement plans for advice to achieve retirement goals.
- 86% of plan sponsors think they should consider a participant’s entire journey (up to and into retirement) to better target desired outcomes.
- Allowing for partial distributions or systematic withdrawals is the #1 tactic our consultant respondents suggest for plan sponsors to help participants through retirement.
- We find that more participants are opting to stay in plan after retirement in recent years; our consultant respondents believe that building plan scale, lower fees, and greater plan sponsor focus on outcomes are the top reasons that drive participants to remain in the plan at retirement.
- Participants across generations (81% millennials, 77% Generation X, and 70% baby boomers) say they would remain in plan if they were given offerings to generate income in retirement.
- There continue to be hurdles to offer retirement income solutions: recordkeeping operations, costs, and litigation risks.
3. Revisiting the core lineup—objectives, mission, goals modify approach to DC offerings.
In this environment, our consultant respondents also suggest plan sponsors revisit their core investment lineup for expanded opportunity, especially considering capital preservation and fixed income in a more opportunistic way. This includes leveraging both capital preservation and fixed income as retiree-focused options and separately considering environmental, social, and governance (ESG) oriented investments with care and an eye toward evolution. Of note, since this work concluded, the Department of Labor released a proposed “New Investment Duties Rule” that is expected to result in a slowing of ESG pursuits in DC plans until conclusion of the proposed rule.3
- Capital preservation is the top investment expected to undergo a due diligence review after the coronavirus pandemic and passage of the CARES Act.
- Stable value is the most recommended capital preservation offering by consultants.
- Stable value activity is expected to pick up, with key drivers being industry shifts requiring due diligence, desire to review the offering, and consideration of stable value as a retirement income tool.
- Even before the DOL’s proposed ruling, while our consultant respondents were broadly supportive of ESG pursuits, many signaled a need for best practices to evolve.