What Does 2017 Hold for the Retirement Plan Industry?
Welcome to 2017! With interest rates going up for the first time in a long time and much uncertainty about how our new president in the White House will govern, 2017 promises to be an interesting year. As I peer into the PenChecks Trust crystal ball, I foresee four main issues facing the private retirement plan sector in the year ahead.
Possible changes to the fiduciary rule. As you are probably aware, the White House recently issued Executive Orders directing the Department of Labor to re-examine its Fiduciary Rule. At the least, I believe this may result in a revision of the rule and a corresponding delay in implementation. However, the possibility remains that the DOL could entirely rescind the rule. Either way, it promises to have a major impact on our industry.
Government competition. The DOL is also allowing states to offer retirement plan services in the IRA and 401k spaces for private sector employees. While this could certainly benefit employees of smaller companies that don’t offer retirement plans, I have concerns about the government competing with the private sector.
Some may consider this move by the government insignificant. Others may see it as just the beginning of more to come. My biggest concern is that we will be forced to compete on an uneven playing field, as these state-sponsored plans may not be subject to the testing and coverage issues that go along with traditional retirement planning.
A growing number of states, including California, Oregon and Illinois, have approved the development of government-sponsored retirement programs, with California and Oregon planning to launch theirs in 2017. Each state will likely have a unique regulatory framework, making it difficult to keep up to date on the competition. Yet, since it is my understanding these programs will not accept employer contributions, one could feel some comfort in that limitation.
Time will tell how successful these programs will be. In the meantime, as an industry we need to be vigilant, observant, and take a proactive approach, including advocating for open multiple employer plans.
Open multiple employer plans (MEPs). I have long advocated for products and services that help workers save for retirement while also controlling costs to employers. I believe open multiple employer plans may offer a fair and more practical solution for achieving these goals than government-run retirement programs. The idea of allowing unrelated small employers to jointly offer a group retirement plan to their employees is long overdue. If set up properly, these plans could be a real boon to employees that currently have no employer-sponsored plans, as well as TPAs, RIAs and others who serve the retirement plan space.
NIPA advocacy program. NIPA is currently putting together a program to promote the value of retirement plan TPA services to employers. To support this important advocacy, PenChecks Trust has offered to host webinars to give NIPA a forum for explaining what they plan to do and how they plan to do it. Educating employers about the importance of TPAs in the overall scheme of successful retirement plans will benefit all of us in the industry.
Long-Term Industry Issues
Looking beyond 2017, I see industry consolidation and continued downward pressure on fees as the major concerns for our industry. As typically happens when an industry undergoes consolidation, companies in the middle tend to get squeezed the most.
Unless they can grow through acquisition or find a way to carve out a unique niche for themselves, mid-size retirement-space players may find it difficult to survive or maintain reasonable profit margins. I believe that consolidation will accelerate in 2017, and we could see an industry-wide contraction of up to 10% of TPAs by yearend.
Consolidation can take many forms, one of which involves different organizations coming together to use their collective economic power to solve unique situations. We already have several examples of this in our industry, including PenChecks Trust, Ktrade, an Internet-based recordkeeping service for retirement plans, and the National Association of Actuaries and Consultants, Inc. (NAACI), a professional organization of owners and key employees in retirement plan consulting and administration businesses.
For example, Ktrade uses a team of Alliance Members to provide national reach and a local, high-touch service to their clients, while NAACI assists it members in the development and maintenance of best practices to manage their businesses more effectively. These types of consolidations represent very creative and effective ways to strengthen and grow our industry, and may well represent a growing trend in the future.
PenChecks Trust Initiatives
We currently have several major IT initiatives underway that will make it easier for our clients to use our online distribution processing technology. They involve upgrades to our proprietary systems to make them faster, safer and easier to use. PenChecks Trust has significantly increased staffing for our IT department to help deliver the upgrades, which will roll out in the second half of the year.
We are also in the process of upgrading the National Registry of Unclaimed Retirement Benefits (NRURB) – the website we sponsor that enables employers, employees and service providers to locate and reunite former employees with their unclaimed retirement assets. When launched, the new site will have a cleaner, updated layout and will be easier to use, especially on mobile devices.
From all of us at PenChecks Trust we wish you a prosperous and successful 2017!
President and CEO