The future of 401(k) plans looks bright

Conversations with 401(k) and 403(b) plan sponsors and participants have moved from “managing through the crisis” to “preparing for the new normal.” As with the 2008-2009 recession, defined-contribution plan participants have mostly stayed the course, maintaining contributions and investment allocations, with the exception of a few that had to make withdrawals.

A crisis is a terrible thing to waste. Enlightened retirement plan advisers should be looking to take advantage of a bad situation. Here are some suggestions:

FINANCIAL WELLNESS

Defined-contribution worksite platforms have always been a great place to communicate with employees and help them manage their retirement and finances. Financial wellness has been focused on technology and third parties. Advisers who meet with participants, providing advice and guidance, are at the forefront of the movement. They should look to harness technology fueled by smart data, wrapped within a well-thought-out process.

Practical applications like emergency-savings accounts should be considered, reducing the need for 401(k) loans, which most plan sponsors hate anyway. Likewise, think about student loan repayment plans that allow younger workers to take advantage of the plan match even if they cannot afford to contribute to the plan. RPAs need to help participants with saving and spending.

OLDER WORKERS

People are living longer, which has extended their work lives, in part out of necessity, but also because people want to keep working past the traditional retirement age. One issue for older workers is the five-days-a-week commuting grind. They might be willing to make less if they have flexibility. With the advent of remote work, made ever more important by the COVID-19 crisis, more people and organizations will be open to leveraging older workers.

DC plans have to help those workers with spending, not just saving. Viewing retirement income as a product rather that a service is like looking at financial wellness as a tech tool. There must be different investment products for people in semi-retirement who are still earning, led by RPAs armed with the right tools and investments, wrapped within a process.

REMOTE WORKERS

It’s not just older people who will continue to from home — lots of employees will be remote, even if for just a few days a week. That provides an opportunity to efficiently and effectively provide advice one-on-one. Younger workers prefer to meet their adviser remotely. The technology and hardware will only get better.

RPAs should not abandon live meetings totally. Some have said that if in-person meetings are rated “10” and phone calls are “1,” then video calls are a “7,” which is pretty awesome. Live meetings can be used sparingly to augment virtual ones and bolster relationships.

PRACTICE MANAGEMENT

It will be easier for RPAs to create a national ERISA practice, working with retirement committees remotely while partnering with local wealth managers to provide live meetings with participants. That can be augmented with virtual meetings, opening up a host of opportunities for local wealth managers within their organization or network.

Some RPAs may get greedy and not want to partner, but not only can these local wealth managers help with participants, they may provide leads to existing clients managing retirement plans. There’s a reason that more than 100,000 advisers have less than 49% of their revenue from DC. Small-business owners and managers prefer to work with someone they trust. Yet managing an ERISA plan is going to be more difficult, with greater government scrutiny and increased litigation. It’s also a headache, and the revenue from DC plans does not allow wealth managers to hire an expert. Why not partner?

That opens up opportunities for RPAs and dabblers alike to put smaller plans into pooled employer plans, the new “open” multiple-employer plans detailed in the SECURE Act.

The convergence of wealth, retirement and benefits is real. Stitching them all together through technology, smart data and a good process, led by an adviser, is not like previous pie-in-the sky claims.

Don’t waste this crisis — the opportunities are real. And if RPAs don’t take advantage, then record keepers, tech giants or data aggregators will.

[More: The online evolution of retirement plan practices]

Fred Barstein is founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews’​ Retirement Plan Adviser newsletter.

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