Greetings and welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA omnichannel and CEO at TRAU, TPSU & 401kTV - I review all of last week’s stories and select the most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
While 401k plans continue to attract critics, the DC system is booming with assets increasing. According to the ICI, overall retirement assets grew almost 8% in the last quarter of 2023 reaching $38.4 trillion led by 401k plans which is still down from their peak of $39.7 trillion in 2021.
Participant directed assets grew the most with IRAs now at $13.6 trillion, up 7% in the past quarter, and DC plans at $10.6 trillion up 8.5%. 401k plans grew 9.3% reaching $7.4 trillion.
Meanwhile DB plans and annuity reserves were just $5.6 trillion growing much slower than DC assets. There is $4.6 trillion in unfunded liabilities led mostly by state not private plans.
And while market gains have accounted for much of the growth, the state of participant directed, especially payroll deducted, plans is strong and growing and, even with an estimated $800 bn rolling out of DC plans into IRAs annually, those same plans grew faster. Expect continued growth as the small plan market explodes due to state mandates, tax credits and PEPs.
As expected, the DOL sent their fiduciary rule published November 3, 2023 to the OMB after a 60-day comment period with the final rule expected to published and effective within the next 90 days with the applicable date later.
Just like previous DOL fiduciary rules, it is expected to be contested in court led by the insurance and brokerage industries which claim that the rule will limit investors access to retirement guidance and products. And though a new administration may not be able to annul the rule, just like with the previous iteration, it may also choose not defend it in court.
Meanwhile, the pending Supreme Court Chevron case which would limit agencies’ rule making authority, could further emasculate the rule.
In anticipation of the new DOL fiduciary rule, the CFP Board commissioned USC to conduct a study with US investors about their beliefs regarding their financial advisors. The results are overwhelming with 97% expecting their advisor to act in their best interest even if it is a one-time engagement like the decision of whether to roll over DC assets.
Of the 736 respondents, 9 in 10 assume that their advisor is required to act in their best interest. While the retirement industry is strongly in favor of the DOL fiduciary as is, it seems, everyday investors, there are other sectors of the financial services industry and the public that are not.
In a must-read column, Captrust outlines how the evolving record keeping industry has changed the roles for retirement plan advisors.
Convergence, or the drive to serve and monetize participants, has changed the business model for many providers leading to massive industry consolidation which will be accelerated if PEPs take off further limiting the number of opportunities for record keepers. In addition, massive investments in technology driven in part by concerns about cyber security and safeguarding participant data will result in even more industry consolidation.
As a result, the role of the plan advisor is evolving beyond the Triple Fs not just to align with those providers most likely to survive, but to also analyze the growing number of participant services offered by record keepers helping clients select the right one for the plan and their employees as well uncovering all provider fees and revenue sources.
The DC world is changing – Captrust details how advisors need to evolve as a result.
As the convergence of wealth, retirement and benefits gains momentum, so will the potential for conflict with providers, advisors, plan sponsors and broker dealers on different sides of some issues.
The fundamental driver of conflict within DC plans is the fact that the buyers are not the principal users. It’s obvious that plan sponsors should not give the record keeping mandate to the bank in exchange for better interest rates on their line of credit but there are more subtle issues like using that provider’s target date funds to lower record keeping costs.
Read my latest WealthManagement.com column about not how to eliminate conflict but how to better manage it while being transparent squashing the most egregious instances.
So those were the most important stories from the past week. I listed a few other stories I thought were worth reading covering:
- How starter 401(k) plans compare to other small businesses options
- The father of 401(k) plans offers new ways to help people save more
- Fidelity study provides overview of the state of the retirement planning
- PEPs still struggle to achieve cost savings
Please let me know if I missed anything or if you would like to comment. Otherwise I look forward to speaking to you next week on 401k Real Talk.
