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November 30, 2021 at 10:41 AM
What You Need to Know
- Only 64% of U.S. workers have access to DC plans, according to T. Rowe Price.
- Lower expected returns mean a bigger role for active management and opportunities for advisors in the future.
- The idea that investors panic in difficult markets is largely a myth, the firm's head of target date strategies says.
Defined contribution plans — 401(k)s and 403(b)s — have definitely grown in popularity since first introduced in 1978, but there is still room for improvement, according to panelists in a recent T. Rowe Price retirement market outlook briefing.
The speakers — all executives of T. Rowe Price, a recordkeeper and plan sponsor — provided various insights into the DC plan world and its importance in retirement. Sixty-four percent of U.S. workers have access to DC plans, noted Rachel Weker, senior retirement manager.
However, as her colleague Joshua Dietch, who handles retirement thought leadership for the firm, pointed out, this means a third of U.S. workers don’t have access to these plans. And the issue goes deeper: Most DC plans are offered by larger companies that tend to pay higher salaries.
That disparity means white workers are more likely than Black workers to have access to a DC plan, he noted.
There are other risks in the retirement system, said Lorie Latham, senior DC strategist. Perhaps the major one today is that people are living longer, and at least one member of a typical couple lives 20 to 30 years into retirement.
“The risk we’re attuned to is longevity,” and long-term care costs are rising faster than inflation, she noted.
Pandemic Effects
A T. Rowe Price study found that one in five respondents reduced their savings and one in 10 in DC plans suspended their matches during the pandemic.
“Although the pandemic didn’t create a savings gap, it showed issues,” Dietch said.
And those challenges are not shared equally. Blacks saved 44% less than their white counterparts, he said. They also had different debt: For example, they were more likely to have medical debt than, say, student loans.
However, although the Setting Every Community Up for Retirement Enhancement (Secure) Act allowed individuals to take out loans from DC plans without a penalty, only 9% took advantage of this, Weker added.
