Chances are that you didn’t know the 401(k) Plan exists in its current form for over 36 years. Since then, these plans have gained a lot of popularity, and this trend is expected to grow as the industry develops further. The trends associated with the 401(k) industry show a promising future.
There are several more trends in the industry, but those mentioned below are the most important ones for the time being. Several plan sponsors, as well as their providers, may be out of touch with the current developments in the industry, but catching up is not a lost cause. Plan sponsors who have failed to decrease their risk, cost and work on their plans should get in touch with their providers and see how they can make things work better. If your providers don’t listen, then you just have to give BenefitGuard a call.
Here are five of the most important ones:
There are two main ways in which competition in the industry pushes costs down. First, fees revolving around administration, such as TPA and recordkeeping fees, are getting lower. And, second, the costs of investments are also pushed down, because an increasing number of plan sponsors gain access to passive, institutionally priced funds.
There are now better investment lineups and share class offerings available to plan sponsors. The industry is beginning to show a preference for passively managed, low-cost, index-tracking funds. Several target date funds and professionally managed models now include many of these funds, simplifying the investment process for participants while ensuring higher diversification and long-term performance net of fees.
Plan sponsors all over the country and especially those who are involved with large plans have experienced a steep rise in audits and lawsuits. Multiple rulings have been issued against plant sponsors by the Supreme Court. What’s more, a lot of plan sponsors have been audited for compliance issues by the Department of Labor, which has been conducting almost 40 percent more checks during the last three years. At the same time, legislators have been examining changes in the structure of the 401(k) so that it becomes more appealing to small and mid-sized companies. Among these changes is the legitimization of multiple employer plan (MEP) structures and the increase in the number of participants required for audits.
The influx of audits and lawsuits has resulted in plan sponsors investigating other options for their retirement plans. Plan sponsors want to avoid any fiduciary roles in case the DOL or the IRS show up. Additionally, they wish to avoid the extra work that comes with any company-sponsored retirement plan. The result of all these is that many plan sponsors hire professional fiduciaries on their plan, to outsource the risk and work relating to discretionary trusteeship, investment management, or plan administration.
The 401(k) industry is finally catching up with the rest of the world as far as technology is concerned. There are several record keeping platforms stuck in obsolete technologies. Paper enrollment is the primary tool for many financial advisors. But things are really improving nonetheless. Online education and enrollment for employees are gaining traction. Record keeping systems are slowly embedding robo-advisory services. Electronic dissemination of notices is now a thing. All the above are steps forward, which will likely lead to the industry seeing significant innovation shortly.