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Retirement income solutions, managed accounts and financial wellness programs are DC plan consultants' top focus, according to a survey by T. Rowe Price. The "2020 DC Consultant Study—Retirement Environment," released in November, found retirement income solutions are expected to more than triple. Currently, over 21% of respondents offer these tools, and nearly 79% expect those services to increase. Utilization of managed accounts is expected to grow from 34.6% to almost 58%.
T. Rowe surveyed 20 defined contribution consultants that together represent over 5,500 plan sponsors and $3.9 trillion in assets under advisement. The survey was conducted in two phases: from Jan. 7 to Feb. 13, and from April 8 to April 21.
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Participant challenges
Plan sponsors and consultants rank longevity as participants' greatest risk, according to the survey. Partial distributions and systematic withdrawals are the primary tool for helping participants through retirement. That's important, as the survey found more participants are staying in their employer's plan after retirement.
Participants' inclination to stay in an employer-sponsored plan after retirement is high across generations, with 81% of millennials, 77% of Gen X and 70% of boomers saying they would do so.
"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," according to the report.
Even so, respondents cited recordkeeping operations, costs and the risk of litigation as challenges that need to be overcome before retirement income options are more widely adopted.
Meanwhile, financial wellness programs, currently used by over 26% of respondents, are expected to increase to nearly 59%. The study uncovered a sense among respondents that DC plans should consider participants' entire life cycle. They expect HSAs and student debt repayment programs to be increasingly more common.
Legislative impact
The report found consultants anticipate the SECURE Act's greatest legacy will be expanding coverage for new sponsors through open MEPs. In-plan annuities had the lowest anticipation, according to T. Rowe.
Respondents are also working on communication campaigns that encourage participants to "stay the course" following passage of the CARES Act. Capital preservation will be a top focus for due diligence reviews in light of the act, the survey found.
T. Rowe's study was conducted prior to the DOL's proposed rule regarding ESG investments. It found that consultants generally support these types of investments, but called for more developed best practices around their utilization.
4 actions for advisors and sponsors to take
T. Rowe recommended four actions advisors and plan sponsors should take:
- Revisit plan sponsor priorities as they relate to the SECURE Act and CARES Act, and the effects of the pandemic.
- Consider the impact thatQDIAs and retirement income strategies may have on participant outcomes.
- Evaluate core offerings to make sure they are aligned with strategic plan goals.
- Examine ways to help participants throughout their financial journeys, not just at retirement.
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