The 401(k) environment is undergoing significant shifts, with employers and participants steering the direction. Fred Barstein, CEO of The Retirement Adviser University, notes that plan sponsors determine what benefits them and how those decisions impact their retirement programs.
The defined contribution (DC) industry is a complex ecosystem, with over 850,000 plans expected to grow to more than 1 million by 2029, according to Cerulli.
This ecosystem includes 285,000 active financial advisors, more than 10,000 RPA specialists, and roughly 50,000 hybrid professionals who focus on wealth management while also handling significant DC assets or plans.
Industry Themes
The major industry themes affecting all segments of the market are the convergence of wealth, retirement, and benefits, the explosion of small plans driven by government mandates, DC industry consolidation, new laws and litigation, and technology—especially artificial intelligence. In the advisor-sold DC market, plan sponsors are beginning to recognize their responsibilities as they shift from defined benefit plans to 401(k) and 403(b) structures.
Participants are on their own to decide how much to save, where to invest, and how to make their savings last for the rest of their lives. Plan sponsors are moving from being unconsciously incompetent to consciously incompetent on the road to consciously competent, but few will become unconsciously competent. They are overwhelmed and understaffed, dealing with double-digit increases in healthcare costs and juggling multiple jobs with little to no training.
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Recent research suggests that plans are focused on improving outcomes, but they must first deal with the nuts and bolts of running their plan, including compliance, managing fiduciary liability, and controlling costs. Vendor due diligence and investment due diligence are also key priorities, especially for professionally managed investments such as target-date funds and managed accounts.
Pooled employer plans are beginning to gain traction, yet many plan sponsors remain unaware of or hesitant to request them. Most plans, especially smaller ones, want simplicity and less work, which explains why payroll providers have thrived and why some fintech firms are succeeding. Some plan sponsors are asking their wealth advisors for help, bringing in a new crop of advisors, especially as the number of newly created plans continues to rise.
Advisors are the only group willing to act as co-fiduciaries, and they are key to success. However, even the largest advisory firms need to collaborate with record keepers, TPAs, and DCIOs to support their practices. Advisors must choose their partners carefully, as both record keepers and TPAs are consolidating rapidly. To gain trust, advisors need to speak in plain language, avoiding acronyms and code sections, and show that they are willing to put the employer and plan participants’ interests ahead of their own.
The Retirement Adviser University, a collaboration with UCLA Anderson School of Management Executive Education, The Plan Sponsor University, and 401kTV, is working to bring the focus on outcomes to the forefront.