The July job report marks the official end of the “war for talent,” with new job growth not meeting experts’ expectations and the unemployment rate up to 4.3% compared to 3.5% last July, the highest since October 10/21. The “war” had been subsiding for months, but July numbers prove it is officially over for now. So how will it affect 401(k) and 403(b) plan sponsors and plan design?
The war for talent started about a year after the pandemic when, after losing 20 million jobs, organizations started rehiring to adjust to a virtual workplace. The great resignation added fuel to the fire.
As a result, organizations shifted their views about their DC plans from tactical, like healthcare plans where the focus is on costs, to a strategic benefit used to recruit and retain workers. The HR and finance professionals who manage most retail DC plans were given more resources by senior management and the front-line recruiters highlighted their retirement plan.
So will the end of the war for talent bring the retail DC market back to the dark ages when the primary focus had been on fees, funds and fiduciary?
Though there will be less focus on using DC plans to recruit, it will remain a key retention tool. HR professionals know the high cost of losing valuable employees as well as the immense amount of time to find and train new ones. There are ways to design a plan to help with retention, such as lower vesting schedules (though counterintuitive, the five-year vesting is archaic and off-putting), retirement income or periodic payouts with guarantees, auto features, personalized investing, student loan repayment programs and emergency savings plans.
Covid didn't just transform our approach to work; it also accelerated trends like technological advancements and the gig economy. Remote work—whether part-time or full-time—has revolutionized the workplace and office environment by enabling global connectivity. Now, benefits such as retirement plans are more than just incentives to retain employees; they are essential for engaging and supporting remote workers.
And though lifespans are currently trending down, over the long haul, people are healthier living longer with many older workers not just staying on but returning to work with benefits and retirement income a draw. According to a recent Schwab survey, participants said they expect to get 43% of their income from DC plans.
More people are comfortable getting advice through AI and ChatGPT but prefer it via a person three to one – enabling advice workers through technology will be the key to providing advice at scale most likely through the workplace where there is greater trust, oversight and at least some data. And while accessing data is tough fraught with dangers, it is getting better and will be fueled by engagement. Retail and consumer enterprises have little trouble getting data from clients and prospects because they offer value in return.
Finally, both federal and state governments are leaning toward requiring and incentivizing employers to offer retirement plans at work, causing DC plans to explode. This will bring in the 275,000 wealth advisors who do not focus on DC plans to help clients, mine for wealth prospects and keep the 12,000 RPA specialists out. Laws have allowed for the proliferation of PEPs, which enable plan sponsors to lower liability, work and, eventually, costs.
So, while the war for talent is officially over, the way employers view DC plans has changed and will not go back to pre-pandemic times. The proverbial toothpaste is out of the tube.
