2021 Retirement Plan Outlook
During 2020, people around the world adapted to the demands of a global pandemic. Companies adopted new business models, employees learned new ways of working and retirement plan providers helped clients adapt to rapidly changing circumstances. That’s likely to continue into 2021.
As we emerge from a world that has been reshaped by the pandemic, we anticipate that plan sponsors and providers will face new and ongoing challenges, including:
1. Tailoring benefits programs to the needs of the workforce. We anticipate the post-pandemic workplace will encompass a highly mobile, flexible and geographically dispersed work force. Companies will have opportunities to attract top talent from outside their usual hiring areas. This will allow them to repurpose and reduce their real estate footprint and provide better work-life balance for their employees.
Benefits can help build loyalty among employees who are distributed around the country or the world. Employers that distinguish themselves by providing incentives that appeal to both W-2 and non-W-2 workers will have an edge over those who do not.
2. Digitally engaging benefit plan participants. We anticipate that digital transformation will continue to accelerate into 2021. Companies may make significant investments in technology – cloud computing, communication and collaboration tools, robotic process automation, artificial intelligence, machine learning and data analytics – that enhance the client experience and improve operational efficiencies.
Digital tools and communications will be essential for the retirement plans industry as it addresses the needs of remote and disbursed workforces. Among other things, we expect plan providers to:
- Deliver more and better digital engagement tools for employees, so they can improve personal finances and plan and save for retirement more effectively.
- Choose technology that allows greater customization, so plans and providers can target messages to specific audiences.
- Offer fewer ‘live’ enrollment and education events and more virtual or recorded events.
- Rethink employee engagement strategies with an emphasis on building relationships digitally.
Client privacy, cybersecurity and fraud prevention will all continue to be high priority issues for plans and providers.
3. Expanding financial wellness programs. The pandemic exposed the financial vulnerabilities of many Americans, even some who may have believed they were financially secure.
In December 2020, the Employee Benefit Research Institute’s (EBRI) Workplace Wellness Survey reported the financial issues that were causing employees the most stress included:
- Saving for retirement, which can be addressed through workplace and other retirement savings plan options.
- Saving for emergencies, which may lead to the expansion of workplace emergency savings funds in financial wellness programs.
- Having job and income security, which may improve as vaccines continue to rollout and the economy recovers.
- Managing debt and paying monthly bills, which often are addressed through financial wellness budgeting and financial counseling programs.
- The financial impact of a serious medical issue, which reinforces the need for healthcare insurance, access to telehealth and the opportunity to save through health savings accounts (HSAs).
Financial wellness programs are likely to offer more options that help improve employees’ financial circumstances today, so they can become serious about saving for the future and retirement.
4. Preparing for CARES Act repayments. The CARES Act (CARES) gave plan sponsors the opportunity to adopt provisions that would provide eligible plan participants with greater access to their retirement savings.
CARES allowed qualified individuals to take coronavirus-related distributions (CRDs) of up to $100,000 from eligible retirement plans (including 401(k), 403(b), and IRAs) without paying penalty taxes. Participants who took CRDs have three years to repay all or part of these distributions.
The repayment process may prove to be more complex than many imagined. Repayments are to be treated as rollovers into plans, which will help plan participants continue growing their retirement savings and help increase their overall financial wellness.
However, some eligible plans may not allow rollover contributions. In these cases, the plan document could be amended to allow for rollovers. In general, though, a plan is not required to change its terms or procedures to accept repayments.
Plan consultants should work with clients and recordkeepers to determine appropriate plan source coding for CRD repayments (rollover versus pre-tax).
5. Planning for lifetime income options. What seems like long, long ago, before the pandemic, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law in December 2019. It included three provisions that address lifetime income in retirement plans. These established:
- A fiduciary safe harbor for the selection of a lifetime income provider,
- The portability of lifetime income options, and
- The need for lifetime income disclosures that show participants how much income their accounts might generate in retirement.
Plan sponsors will need to make some important decisions about whether and how to respond to SECURE Act provisions.
There is little doubt that adapting to the new normal will be challenging. Companies will be focused on strengthening their businesses and relationships with clients and improving productivity. Attracting and retaining talent will be important, as will helping employees restore financial stability.
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The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.