2025 Trends in DC Retirement Income Solutions
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Insight: Studies, Research, Analysis, and Papers 2025 Trends in DC Retirement Income Solutions The executive director of the IRIC outlines expectations for defined contribution plans in 2025, emphasizing their evolution due to demographic changes, technological progress, and regulatory adjustments. With uncertainties surrounding Social Security, longer life expectancies, and the decline of traditional defined benefit plans, generating retirement income from DC plans is increasingly important for policymakers, employers, and participants. Key trends anticipated for 2025 will significantly influence retirement income strategies for millions of Americans. Source: Plansponsor.com One in Three Guilty of Overspending in Retirement: EBRI A recent study by the Employee Benefits Research Institute reveals that 31% of retirees in 2024 are spending more than they can afford, a significant increase from 17% in 2020. The survey, conducted in the summer of 2024 and involving around 3,600 retirees aged 62 to 75, indicates a rising trend in unaffordable spending among retirees: 27% reported the same in 2022. Additionally, the study found that half of the respondents saved less than necessary for retirement, while one-third felt they saved the right amount, and 17% believed they saved more than needed. Source: 401kspecialistmag.com »» Click here for More Studies, Research, and White Papers Items of Special Interest to Advisers and Other Service Providers 2024 Defined Contribution Consultant Study T. Rowe Price's fourth annual Defined Contribution Consultant Study gathered insights from the defined contribution consultant and advisor community regarding current retirement perspectives. The study, conducted from January 12 to March 4, 2024, involved 35 leading consultant and advisor firms, which together manage over $7.5 trillion in assets. Key findings continued to highlight areas such as target date solutions, retirement income, investment trends, and financial wellness programs. New topics introduced this year included managed accounts, alternative investments, and comparisons of active versus passive management strategies. Source: Troweprice.com Principal's Houston Says Recordkeepers Must Go Beyond Scale, Innovate to Expand Service At the PLANADVISER 360 conference in Scottsdale, Arizona, Dan Houston, chairman and CEO of Principal Financial Group, highlighted the significance of scale in the ongoing consolidation of recordkeeping companies. He emphasized that innovation and enhanced participant services will be crucial for sustained growth, as advisers leverage these advancements. Houston anticipates further acquisitions and consolidation among recordkeepers but believes that future success will demand greater customization for advisers and plan sponsors to better address participants' needs. Source: Planadviser.com 403b Plans Consumer Advocacy Groups Push Back On CIT Use by 403bs Six investor advocacy groups have expressed their opposition to the Empowering Main Street in America Act of 2024 (S.5139), which allows 403b plans to invest in collective investment trusts. The bill, introduced by Senator Tim Scott, would amend the Securities Act of 1933 and remove regulatory oversight by the SEC. The groups argue that this change could lead to the sale of unregistered financial products with hidden risks and costs, potentially harming vulnerable retirement savers. Source: Planadviser.com »» Click here for More 403b Material Court and Legal Latest 401k Plan Forfeiture Complaint Filed Against BMO Financial BMO Financial Corp. has been sued in federal court for allegedly misusing forfeitures from its 401k plan, with the lawsuit seeking class-action status. Filed in the U.S. District Court for the Central District of California, the complaint claims that BMO's retirement plan committee did not adhere to ERISA regarding forfeited funds. BMO, part of the Bank of Montreal, stated it believes the allegations have no merit and will defend itself vigorously. Source: Plansponsor.com Services "Standard" Sinks Another 401k Excessive Fee Suit A lawsuit alleging excessive fees in the Mitsubishi Chemical America Employees' Savings Plan has been dismissed. The participant-plaintiff, Robert Humphries, claimed fiduciary breaches, but the court found that he failed to conduct a proper comparison of services relative to the fees charged. The judgment favors the plan's fiduciaries, as the judge emphasized that evaluating fee reasonableness requires more than just a size comparison, establishing a high bar for such lawsuits to succeed. Source: Napa-net.org US Supreme Court Agrees to Hear Recordkeeping Fees Case Against Cornell University In 2017, several private universities, including Cornell University, were sued in ERISA class action lawsuits for alleged fiduciary duty breaches related to high recordkeeping fees in their defined contribution plans. In the case Cunningham v. Cornell University, the district court dismissed claims about prohibited transactions tied to these fees, a decision upheld by the Second Circuit Court of Appeals in November 2023. This ruling contributes to an existing circuit split regarding the standards for plausibly alleging prohibited transaction claims under ERISA. Subsequently, the US Supreme Court granted the plaintiffs' petition for writ of certiorari in Cunningham on October 4, 2024, marking this as the second university case to reach the Supreme Court, following Hughes v. Northwestern, decided in early 2022. Source: Morganlewis.com »» Click here for more Court and Other Legal Issues Legislative and Washington DC Five Ways Trump's Election Could Change Employee Benefits Attorneys are preparing for potential changes to tax, investment, and health policies that could arise from Donald Trump's second term as president, particularly regarding employee benefit plans. Trump's administration is expected to roll back regulations established under President Biden related to retirement advice, investment selection, and healthcare protections. Brigen Winters from Groom Law Group emphasizes that the expiration of tax provisions in 2025 will be a critical issue impacting employee benefits and retirement health benefits. Source: Wagnerlawgroup.com Will It Be Feast or Famine for Retirement Policy in the Lame Duck? As President-elect Trump prepares to return to the White House and Republicans gain control of Congress, the upcoming lame-duck session will involve finalizing unfinished legislative business. The outcomes of the recent election are expected to influence proceedings, as outgoing members may seek to leave a legacy. However, the potential for passing retirement policy legislation will largely depend on lawmakers' willingness to discuss issues beyond essential bills. Source: Napa-net.org »» Click here for more on Legislative and Washington Actions Compliance and Regulatory Do You Need to Send an Annual Notice to Plan Participants? Plan sponsors of defined contribution-qualified plans are required to issue various annual notices to participants before the end of each plan year. Neglecting to issue these notices can lead to serious consequences, such as losing safe harbor status for 401k plans, which may result in restrictions or refunds of contributions for highly compensated employees. This article serves as a reminder of the multiple year-end notices that defined contribution plans must be issued to participants. Source: Alston.com IRS Guidance: How Reliable Is It? Federal agencies translate legislation affecting defined contribution plans into guidance, with the IRS focusing on tax laws and the DOL on labor laws. The IRS provides crucial guidance that helps plan sponsors, fiduciaries, and participants to effectively implement tax-preferred savings options. This framework is essential, as it reduces uncertainty surrounding new laws such as the SECURE Act of 2019, the CARES Act of 2020, and SECURE 2.0 from 2022, ensuring these legislative changes are practical and beneficial. Source: Callan.com New Permissible Minimum Service Requirements for 401k and 403b Plans The SECURE Act, signed into law on December 20, 2019, followed by SECURE Act 2.0 on December 23, 2022, introduced several changes to 401k and 403b plan requirements. One significant change pertains to minimum service requirements for participation in 401k plans, allowing sponsors to set criteria that help streamline administration by excluding part-time employees with minimal participation history. This is aimed at reducing the administrative burden associated with managing small accounts. Meanwhile, 403b plans must provide universal eligibility but can exclude employees working less than 20 hours per week for similar administrative efficiency reasons. Source: Berrydunn.com Understanding When a Retirement Plan Audit Is Required To demonstrate fiduciary responsibility and avoid fines, it's crucial for retirement plans to understand when audited financial statements are required with Form 5500. Starting from plan years beginning on or after January 1, 2023, a plan is considered a "large plan" and requires an audit if it has 100 or more participants with account balances at the beginning of the plan year. For plans initiated during the year, the audit requirement is based on the number of participants with account balances, triggering the audit if that number exceeds 100. This article provides a quick overview of the requirements. Source: Withum.com Prepare for Upcoming Changes to Retirement Plans for 2025 The SECURE 2.0 Act of 2022 introduced major changes to retirement plans, with some already implemented by service providers and others set to take effect in 2025. Employers must comply with these changes as they come into effect, but the IRS has allowed an extended deadline for adopting amendments to reflect the changes until the end of the 2026 plan year for many employers. This article outlines some of those changes. Source: Wagnerlawgroup.com SECURE 2.0 in 2025: Here Comes a Big Plan Design Change As we approach 2025, new provisions of the SECURE 2.0 Act are set to impact retirement plan design and administration. Key changes include: mandatory automatic enrollment, long-term, part-time employee provisions, and increased contribution opportunities. Advisors should use this information to guide clients on how these regulations may affect their plans, allowing for strategic adjustments in administration and participant communications. Source: Penchecks.com »» Click here for more Compliance and Regulatory Material Marketplace News Pontera and Oppenheimer partner in Holistic Wealth Management That Incorporates Clients' 401ks Carson's Financial Planning Head Brings Together 401k, Wealth Advisement New Future Capital Partnership Targets Held-Away 401k Assets Post-Chevron Ruling Toolkit Rolled Out by ERISA Law Firm
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