In the midst of all the partisan focus in Washington, it’s easy to lose sight of an important issue that everyone agrees on: Expanding the opportunities for Americans to save for retirement. Behind the current high-decibel policy debates, officials in Washington are actively drafting various forms of legislation to address this issue.
As a result, it’s likely that we’re going to see legislation passed and enacted into law that will either highly incentivize or mandate organizations with as few as 25 employees to offer retirement plans.
For some time now, there has been support on “both sides of the aisle” to expand access to employer-sponsored plans. And there is now a heightened awareness of wealth disparities in the US as a result of the COVID-19 pandemic. Enabling more people to save for retirement — especially people who historically have had fewer opportunities to do so — would help to address the wealth disparities.
And the social benefit is compelling. According to the Federal Reserve, Black and Hispanic families are less likely to have access to employer-sponsored plans than their White counterparts.
Once employees have an opportunity to participate in a retirement plan, the data suggest that they will do so. According to the US Bureau of Labor Statistics, in 2020, the defined contribution plan take-up rate for private industry employees — that is, the percentage of employees with access to plans who choose to enroll in them — was 73%.
Historically, it’s the smallest firms that have been the most under-represented in the 401(k) market. It’s only now — with advancements in technology and developments in Group 401(k) Plans — that we’re starting to see the retirement industry introduce new offerings in the micro 401(k) market. Yet it’s this segment of the market that will probably see the biggest surge in demand once new employer-sponsored retirement legislation is enacted into law. And, of course, engaging first-time retirement investors to participate in their new plans will require significant and innovative outreach programs.
Of course, getting smaller businesses set up to offer retirement plans for the first time will be shaped largely by the final legislation. However, no matter what form that legislation takes, it’s likely that plans will have to offer a combination of digital engagement and human interaction to reach hundreds of thousands of small businesses and connect and engage with their tens of millions of employees.
It is time for financial services firms and retirement plan advisors to assess their current capabilities all along the spectrum of retirement plan business. For example, do you have the breadth of distribution and/or a significant share of existing small business relationships? Do you have the right mix of digital and human engagement? Can you scale up, quickly?
From my perspective, it’s tough to name one retirement advisory firm that “owns” all the needed capabilities. Therefore, when it comes to new retirement plan legislation, turning challenges into opportunities will require strategic partnerships. And I can assure you we will see some interesting and innovative combinations.
Of course, successful partnerships take time to identify and integrate. So now is the time to start!
Princeton Financial Consultants can help. Our experience in setting up strategic relationships can help you create a retirement plan offering that will meet the challenges and take advantage of this significant opportunity. Contact us for a personalized consultation today.
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