A few decades ago, retirement planning was entirely about theemployer. Defined benefits and pension plans were the norm, and most workers could expect tolive well — or, at the very least, adequately — in retirement. Butmore recently, the tide has changed. Much more emphasis has beenplaced on the employee’s role in their retirement plan.

These days, employees are contributing to their plan, adjustingtheir savings amounts, and even choosing which funds to invest in.As employees take charge of their own retirements and youngergenerations learn from the mistakes of baby boomers, the industryhas no choice but to adapt to the next generation of retirementplans.

Where we stand
Elaine Sarsynski, executive vice president of MassMutual’sRetirement Services Division and chairman and CEO, MassMutualInternational, says the retirement industry is more important nowthan it ever has been. “Because of the stress on Social Security,we know that over time Social Security may not be fundedappropriately for Gen X, Gen Y, and even baby boomers on the tailend,” she said.

“Americans more than ever need the industry because advice andeducation is paramount right now for our participants.” “Theindustry is still very robust,” says Skip Schweiss, president of TDAmeritrade Trust company. “I think there was a little bit of panicthat set in about the retirement industry because when the marketcrashed, people’s 401(k)’s crashed. But a lot of that has kind offaded.”

Now that the panic has subsided, Schweiss adds, participantsstill see 401(k)s as their primary retirement savings vehicles. Butthe plans have changed over the years. One of the biggest recentchanges to 401(k)s is the addition of auto-features — auto enrollment and auto escalation. “These features were putin place in response to the lower participation rates we’ve had inthe past several years,” says Jennifer Kiesewetter, an employeebenefits attorney at the Kiesewetter Law Firm PLL in Memphis, Tenn.

“Also, it helps our younger workforce start thinking aboutretirement earlier.” Kiesewetter, who also teaches employeebenefits at the University of Memphis School of Law, says thatwithout auto-enrollment features, many younger employees would putoff contributing to their retirement plans until they were in theirlate 30s, this has a detrimental effect on their ability to retiresuccessfully.

“A lot of employers don’t take advantage of auto featuresbecause of the costs involved,” says Beth McHugh, vice president ofmarket insight and a 401(k) executive at Fidelity. “But we try totalk to plan sponsors and encourage them to take the long view.”McHugh says that employers who use auto-enrollment have very fewemployees opt-out of the plan.

Investment strategies and 401(k) trends
One of the biggest changes for 401(k)s are new investment options,which allow employees to take a more active role in theirretirement. “We’ve seen a shift over the years from really just afocus on mutual funds to more focus on things like collectivefunds, which traditionally have only been accessible by the largeplans,” Schweiss says. “Those have come down market to the smallerplans.”

McHugh says that many plan sponsors are taking a more tieredapproach to investments, where a different set of investments mightbe offered for more sophisticated investors. However, there isn’tvery high utilization of those options. Another seemingly hotproduct that hasn’t received a very high response, according toMcHugh, is the annuitization of 401(k)s.

“Annuities aren’t for everyone,” she says. “It’s really based onthe individual’s situation, and there are opportunities for peopleto purchase them outside of their employer’s plan.” Some companies,like Ameritrade, are now offering ETFs in their 401(k) plans, whichSchweiss says there’s a lot of demand for. Some ETFs can even beaccessed free of transaction charges.

Schweiss says the interest is probably due to a number offactors such as low expenses and the ability to create a customplan. But the biggest draw, he thinks, is the ability for employeesto have more control. “It’s a double-edged sword,” he says. “Ithink it’s a great thing that employees can take control over theirinvestments and their retirement destiny, but it does come with aneed for greater education.”

The importance of education
For Dave Pitts, manager in the Actuarial and Benefits ConsultingPractice at Lurie Besikof Lapidus & Company, education is keyto making the new model of retirement savings work. “We’ve shiftedover the last 50 years from primarily employer-provided retirementto primarily employee-provided retirement,” he says.

“Employees are not going to be as sophisticated as a CEO in howto make smart investment allocations, so there needs to be expandededucation in how to make smart investment in your 401(k), how toreally be your own fiduciary. That’s a lot to ask of the averageparticipant, but that’s where we’re going with the Americanretirement system.” Sarsynski agrees.

She says the No. 1 focus in the next few years shouldn’t be onnew products or investment strategies, but on discovering new,better ways to educate participants. “The most important thing inour industry today is switching the conversation to one of planhealth and how we can ensure that participants have sufficientincome in retirement,” she says.

Regulatory changes ahead
With all the new investment strategies and shifting focus toemployee-driven retirement, several new regulations are in theworks to help ensure that participants and their investments areprotected. The first two center around providing more disclosure,both of plan-related information and of investment-relatedinformation. The regulations go into effect in early 2012. Theregulations were very detailed and not particularly controversial,Schweiss says.

“I think this is a great leap forward so that plan participantswill have a better idea of what they’re getting in their plan andwhat they’re paying for,” he says. “There are some plan sponsorsthat do a great job of hiding those fees or making them invisible.”The other two regulations, however, are not so easily accepted. Thefirst, which would expand the definition of fiduciary, would have asubstantial impact on the industry. Another, the retirement planadvice rule, would change how advisors are able to give advice toplan sponsors.

The final rulings haven’t been made yet, but both would havemajor impacts on the retirement industry, IRAs, and 401(k)s. Thereare also some new product regulations that have been discussed,Kiesewetter says. One allows a kind of hybrid plan, which providesboth 401(k) benefits and defined benefit plan benefits, to exist.The IRS recently released guidance on this plan, Kiesewetter says,so sample plan documents are just starting to emerge.

There’s also the automatic IRA bill, which allows employees whodon’t have access to any type of 401(k) to enroll into an IRA; theemployer will auto-hold a portion of the employee’s paycheck andcontribute to an IRA on their behalf. “They’re hoping it will fillthe gap for small employers who can’t afford the 401(k) plans foran administrative standpoint, and still allow their employees tosave for retirement,” Kiesewetter says.

As employees take control of their retirement, investmentsbecome more employee-friendly, and regulatory changes provide moretransparency and perhaps drive costs down, there is no doubt thatthe retirement industry is evolving. The question is: Are youevolving with it?