The modern retirement plan era began in 1974, with passage of ERISA and authorization of Individual Retirement Arrangements (IRAs).

Four years later, a change in tax law created 401(k)s. For the next 38 years IRAs and 401(k)s drove U.S. retirement plan growth.

This year, a new paradigm begins with the launch of the first state-sponsored Secure Choice programs.

Although these programs have different rules, they generally require all employers (above a certain size) to offer a plan that covers all eligible workers. Most Secure Choice programs mandate auto-enrollment and some require automatically increasing contribution percentages over time.

Some authorize investment choices designed to convert into guaranteed annuity payouts at retirement.

Secure Choice is just the first phase of the new paradigm, and soon private retirement plans also may be required to adopt these features.

Eventually, Social Security may be replaced, in part, by retirement plans that mandate participation, invest in pre-built baskets of equity indexes and U.S. Treasuries, have limited access to assets prior to retirement, and promise guaranteed lifetime payouts.

Although several policymakers have advocated for the new paradigm, one person stands out based on her credentials and consistency. She is Alice H. Munnell, a research economist who has worked for the Federal Reserve, as Assistant Secretary of the Treasury in the Clinton Administration, as professor at Boston College, and as founding and current director of the Center for Retirement Research at Boston College.

For some time, her mantra has been that: 1) Most people won’t save enough for retirement on their own initiative; 2) Guaranteed pensions create more financial security than 401(k)s and IRAs; 3) The 401(k) plan was poorly designed, because it leaves too many decisions to individuals, costs too much in fees, and permits too much leakage; and 4) The government should mandate retirement plan coverage for everyone, with minimum required contribution/deferral rates.

Actually, Alice, the 401(k)-IRA era wasn’t planned or designed by anyone. It was driven by millions of individuals’ desire to make their own retirement plan decisions and control their own money.

It coincided with a huge expansion of individual participation in investment markets, with the help of financial advisors.

The new paradigm will be driven by government mandates and automatic templates, and (somewhat by design) millions of participants will no longer need professional advice. However, 401(k)s and IRAs are still too large and popular to disappear.

In regard to Secure Choice mandates, employers and participants who affirmatively make active decisions can continue to continue to control their own plans. You can urge clients and prospects: “Avoid big-government interference by taking charge and proactively making your own plan decisions, with my help.”

For employers, avoiding Premier Choice mandates is as easy as adopting another type of retirement plan (e.g., a SIMPLE or SEP).

For participants, avoiding automatic enrollment, government-imposed deferral rates and default investment choices is as simple as obtaining good advice and affirmatively making these decisions base on personal needs and goals.

To better understand the emerging new paradigm, you also may want to study some of Ms. Munnell’s research and interviews.

Instant Insights /

Don&rsquo;t be left out by the new retirement plan paradigm

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Don’t be left out by the new retirement plan paradigm