Lincoln Trust Co. on Wednesday released a report on six “megatrends” that would affect the retirement plan industry in 2012. These trends focus largely on upcoming regulatory changes, but also include wider industry changes.
“In this volatile market, we are tracking both industry and Department of Labor regulatory trends to help retirement plan advisors, plan sponsors and participants understand the changes that will unfold over the next 12 months,” said Tom Gonnella, senior vice president of corporate development for Lincoln Trust. “With new regulations and greater awareness of the impact that fees have on the long-term performance of 401(k)s, this is a pivotal year for the industry. But more needs to be done to help plan sponsors and participants be successful in planning for their retirement future.”
The six megatrends Lincoln Trust sees in 2012:
1) New 401(k) Fee Disclosure Rules by DOL
New Department of Labor (DOL) regulations go into effect April 1, 2012, and will shake up the industry, as plan sponsors and participants for the first time see the true cost of their retirement investments.
[Update: On Feb. 2, the DOL released its long-awaited final rule on 401(k) fee disclosures and extended the compliance deadline to July 1.]
2) “C Suite” Sticker Shock
Company executives, who typically have the largest participant balances and therefore pay the most significant expenses in their plan, will likely be most affected by new fee disclosure rules, according to Lincoln, resulting in “a wave of 401(k) reevaluations.” The firm predicts companies will begin looking at changing plan administrators, lowering investment expenses, or reallocating overall expenses across the plan structure.
3) A Refined Fiduciary Standard
The Dodd-Frank Act signed in July 2010 accelerated the discussion about the fiduciary standard, and along that line the DOL will refine and clarify the issue in 2012. Lincoln foresees some advisors and administrators shifting strategies to adopt open architecture ERISA 3(38) plans or exiting the business altogether.