2016 Midyear Overview: Uncertain Times Ahead for the Retirement Industry
The first half of 2016 has zoomed by in a flash. To date, it’s been a good year for PenChecks Trust. But as I survey the landscape I’m not overly optimistic about the long-term direction of our industry. The retirement plan space has undergone significant change in the past few years, much of it in the way of complex new regulations imposed by the IRS and Department of Labor. If you’re still wondering how to adjust to all these changes, fasten your seat belts because there’s more to come.
I believe that 10 years from now our industry will look very different than it does today. In fact, the main staple of the private retirement industry – 401k plans – probably won’t exist in the same shape and form that we know today. Instead, we’re likely to see government-run 401ks with some guaranteed return (because Americans aren’t saving enough) or new types of programs that encourage people to save more. We’re also likely to see added refinement to the new fiduciary rules that will more than likely create greater complexity and displacement. As a result, we may need to reinvent the way we currently deal with retirement funds and most definitely how we advise people who want their money managed.
My biggest concern is the growing encroachment of government on our industry – in particular the federal government’s decision to allow state governments to offer their own IRA and 401k plan services. Whether the government should be allowed to compete with private industry is a matter of debate. The fact remains that several states have approved offering these products, which means we will soon have to deal with a new and unexpected competitor in the marketplace.
As I look ahead five or 10 years, I also see:
- Increasing government involvement in our industry
- More regulations and more complexity
- Increasing compression on fees and how we generate them
- More industry consolidation, leading to less competition
- Plans under the $10 million threshold will have fewer options
Perhaps most impactful will be the increasing Department of Labor scrutiny in terms of how we manage retirement funds, especially in the areas of missing participants and uncashed retirement checks. As a whole, I would say our industry has been a bit lax in upholding our fiduciary responsibilities in these areas, and the DOL seems determined to start holding us more accountable and increasing their audit process.
What Can We Do as an Industry?
First, we need to continue working with our elected officials at the state and federal levels to ensure our voice is heard. Going forward, this may involve looking for ways to partner with the government rather than competing against them. At this point, however, we can only speculate as to what extent government entities will participate and how their involvement will affect our market.
On the consumer side, we need to do a better job of educating people – especially our younger generations – about the importance of saving for retirement. Many believe the government has an obligation to take care of them. Others feel the money won’t be there even if they do save, so why bother.
We also need to come up with new products and services that make it easier to save for retirement. For example, a “master” IRA account that follows an individual from job to job and makes it easy to transfer funds from one retirement plan to another. This would help resolve the very large unclaimed retirement funds problem, or at least prevent it from getting worse. Hopefully, it would also encourage more people to put money away for their post-work years.
Bottom line – our industry will be very different a decade from now. Whether it will turn out good or bad, I don’t know. But I do know the more and the quicker we get involved in shaping our future, the better the odds of it turning out good for consumers and those of us who plan to keep innovating in our industry.
President and CEO