We look ahead to 2016 by asking six retirement industry executives what they see coming in the defined contribution plan space.
One trend we've seen is that of consolidation, which analysts confirm.
"Recordkeeping costs for sponsors and participants are half what they were 10 years ago," says Brooks Herman, head of data research at BrightScope, an analytics firm that tracks the defined contribution space.
"Going forward, providers' margins are going to be paper thin," he added.
Fee compression and technology innovation—two factors that are not independent of each other, notes Herman—will continue to drive the industry.
And that will propel more consolidation. Only time will tell how much more.
"At some point recordkeeping fees will hit a bottom," says Herman. "It will always cost some money to administer 401(k) plans. From there, it becomes a question of which providers have the power to scale."
We asked six executives in top retirement industry companies their views of what's ahead for 2016.
Here in no particular order are Wells Fargo's Joe Ready, T.Rowe Price's Aimee DeCamillo, Schwab's Steve Anderson, Voya's Charles Nelson, Fidelity's Douglas Fisher, and Empower's Edmund Murphy on the coming year 2016:
Joe Ready, head of Wells Fargo Institutional Retirement and Trust
Wells Fargo Institutional Retirement and Trust administers $329.8 billion in assets for 4 million participants (number of plans not provided)
What developments do you expect for the defined contribution space in 2016?
We're all anticipating the DOL's release of the conflict of interest rule to fully understand how it will impact the industry, and more specifically, how it will influence how we're able to interact with clients and participants and getting them the help they need.
One potential outcome of the rule is participants may be more likely to stay in their plan after they retire to continue to take advantage of low-cost institutional investments and access to education and advice.
This could foster further evolution and innovation of in-plan products and services geared toward helping people who are living in retirement.
In addition, the retirement industry will certainly be watching as inevitable changes takes place in the White House in 2016; it will be interesting to see if there's a subsequent shift in the retirement policies that have been in play, including tax treatment of 401(k) plans, the advent of state plans, and other proposed retirement solutions.
When polled on if the markets will be better off if the next president is a Democrat or Republican, half of investors (51%) say it will not make a difference; a third say a Republican and 15% say a Democrat (according to the recently released Wells Fargo/Gallup Investor and Retirement Optimism Index).
Aimee DeCamillo, head of Retirement Plan Services at T. Rowe Price
T. Rowe Price Retirement Plan Services administers $297.6 billion in assets for 2 million participants in more than 3,500 plans
What developments do you expect for the defined contribution space in 2016?
A solid financial foundation is critical to achieving retirement success and due to competing priorities we continue to see participants' financial struggles impact savings behaviors.
In 2016 and likely beyond, financial wellness will be a critical key lever, in addition to smart plan design, to solving for the retirement readiness dilemma.
In our more than 30 years of experience, we've seen changes in plan design and participant communications make significant headway on retirement readiness.
However, we continue to see evidence of Americans struggling with fundamental financial challenges that will result in an inability to save effectively for retirement.
Thus, in addition to plan design best practices, we see significant value in integrating a Financial Wellness solution into overall participant engagement programs.
An integrated financial wellness program will help employees address emergency savings, debt management and budgeting, building a firmer financial footing that will ultimately result in more successful retirement savers.
Of course, the regulatory environment will also bring significant change to the defined contribution space in 2016 with the implementation of money market reform and the potential for a new fiduciary standard for investment advice.
Steve Anderson, President, Schwab Retirement Plan Services
Schwab Retirement Plan Services administers $125 billion in assets for 1.4 million participants in 1,200 plans
What developments do you expect for the defined contribution space in 2016?
As sponsors continue to focus on cost and transparency, more will look at reducing investment management fees as one way to help participants in 2016.
