Retirement assets will inflate to $35 trillion by 2019, an alarming 40 percent increase from today’s total, according to a broad swath of retirement industry stakeholders and experts.
And it won’t necessarily be runaway equity markets leading the growth in assets.
Rather, the $10 trillion increase will be sparked by a comprehensive shift in plan sponsors’ expectations, which experts say will evolve from measuring successful plan design in terms of compliance to measuring plan success in terms of participant outcomes.
Transamerica Retirement Solutions’ Prescience 2019 survey asked 62 experts more than 100 questions in an attempt to forecast everything from how sponsors will benchmark plan success, to how mobile technology will be used to drive deferral rates, to how regulation will affect the potential for increasing automatic-enrollment rates.
The study concludes that a sea change in sponsors’ thinking is afoot, as their mindset shifts to how to better improve participants’ retirement readiness.
A focus on participant education initiatives will be replaced with greater utilization of auto-enrollment at increasingly higher deferral rates, the survey found.
By 2019, 55 percent of sponsors will be deploying auto-enrollment, and 45 percent will be defaulting participants at a 6 percent contribution rate or more, the survey found.
Diagnosing plans’ inefficiencies will become the norm by 2019, as the experts believe 70 percent of plans will have undergone at least one plan readiness report, and half of plans will have taken action to enhance overall plan readiness by then, the survey found.
Further propelling the predicted $10 trillion increase in overall retirement assets will be the increase in plan adoption in the small private employer market, as 75 percent of employers with 50 to 100 employees are expected to be sponsoring plans by 2019, a 12 percent increase.
As rank-and-file employees benefit from enhanced plan and product design, higher-compensated employees will demand evolved retirement solutions in the form of non-qualified deferred compensation plans. The report predicts one-quarter of midsized plans will have adopted NQDC options by 2019, and that demand will drive product innovation.
Regulation in 2019
The majority of stakeholders don’t expect Congress to lower individual or combined contribution limits to defined contribution plans, nor do they expect state-run retirement plans for the private sector to gain traction in the near-term: 65 percent of surveyed experts believe that fewer than 5 percent of sponsors will offer state-sponsored plans when they become available.
While the survey did not explicitly ask whether the Department of Labor would successfully finalize a fiduciary rule, the experts were asked to weigh in on where the state of regulation will be relative to several core areas of the DOL’s proposal.
The vast majority—85 percent—expects the DOL to have issued a safe harbor by 2019 defining how plan communications can be delivered electronically.
And three-quarters said they expect the DOL to issue a safe harbor on the use of in-plan annuities.
Also, 70 percent expect the DOL to have finally gotten around to mandating annuitized estimates of retirement income with 401(k) account balances.
On issues not related to the DOL’s proposal, almost half of experts agreed that Congress will create a new federal retirement agency to codify jurisdiction now shared by the DOL, the SEC, the IRS, and FINRA.
And 40 percent expect Congress to institute new sales or alternative minimum taxes to discourage unnecessary consumption of goods in order to direct more Americans’ earnings toward retirement accounts.
Notwithstanding the expected $10 trillion increase in retirement assets, plan providers will be challenged by an ever disintegrating workforce that will see the number of 1099 workers increase significantly, as home-based and mobile workers will reach 18 million.
And nearly all agreed that labor force participation for those 65 and older will rise, as some pre-retirees stay on the job or retire to take a new position with the same employer, a phenomenon adding to the stagnation and even decline of traditional employment and challenging retirement providers to reach workers through new channels, according to the report.