A quartet of esteemed esquires concluded during the closing panel of the first day of the National Association of Plan Advisors' 401(k) Summit 2014 on Sunday that the retirement business is on the verge of seismic change.
The evolving nature of fiduciary responsibility, the impact of the Patient Protection and Affordable Care Act on retirement and the likelihood of upcoming DOL regulations that will require employers to inform workers of the financial requirements of a sound retirement will conspire to create a retirement landscape very different from the one currently in place.
“We are at an inflection point,” said Marsha S. Wagner, president and founder of The Wagner Law Group, a thought echoed by Douglas Fisher, senior vice president of policy development, Fidelity Investments.
“The cruel joke of our retirement system” is that “we don’t tell (workers) how much they need to retire,” Fred Reish, a partner at Drinker Biddle & Reath, told conference attendees. He said that he believes the Department of Labor later this year will set in motion the start of creating regulations that will require employers to tell their workers how much they need to retire.
“That will bring up a discussion of replacement rates,” he said. Some will say 80 percent of current income and others might say 70 percent, he said. “How will we close the gap?” he continued. “You guys,” he said, as he pointed to his audience, “will be doing gap analyses till they’re coming out of your ears.”
Fidelity recently released “a pretty grim report,” said Fisher, who reported that the average household is on track to achieve 71 percent of its retirement needs. “We are talking about the economic survival … of retirement.”
Reish said he believed that regulations might be finalized 18 months from now.
The panel also discussed the implications of the PPACA. “There will be anticipated and unanticipated effects,” said Wagner. “Now that employees have permission to buy elsewhere, that will lead to employee mobility.”
Fisher stated that “individuals will make more of the buying and spending decisions,” while Reish said that “if we get past the next five years of burdens,” there will be a dramatic shift in freedom of movement. “The value of an employees will be the value of their mind,” he told attendees.
Another area of concern was the distinct possibility that advisors will soon be handed fiduciary responsibility.
Plan sponsors have become more aware of their responsibilities,” said Rebecca Kaplan, fiduciary compliance consultant, Angell Pension Group. “Now you can outsource your responsibilities. (As a result), plan sponsors are starting to believe they don’t have any continued responsibilities. But they do.”
“I think it’s fantastic that there are vendors out there willing to help plan sponsors (but) plan sponsors have to know what they are buying,” said Wagner. “You need a fiduciary service agreement.”