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401(k) Trends ... Where we've been ... Where we may be headed - Part 2

04/22/2018

NAPA 401(k) Summit Pressentation

This is a continuation of our last blog on 401(k) plan trends – past and future. In the prior post, I identified:

  • Six 401(k) trends that have emerged over the past ten years, as documented in PSCA’s 60th Annual Survey, and 
  • Four other economic and demographic trends that affect 401(k) participation, including:
    - The frequency of equity market declines after 1945;
    - Median tenure of American workers is less than five years; 
    - Today’s 50 year olds held an average of 12 jobs between their 18th and 50th birthday; and
    - 60% of American households will pay little or no income tax in 2018. 

That blog post concluded with four predictions about how 401(k) trends would change over the next ten years:

  1. Continued expansion in automatic features, applying automatic enrollment and escalation beyond new hires; 
  2. Increased adoption of target maturity models as a Qualified Default Investment Alternative (QDIA); 
  3. Increased access and use of Roth provisions; and  
  4. A potential shift in strategic focus by plan sponsors from retirement outcomes to maximizing real and perceived value to create a competitive advantage.  

Other Trends of Significance to 401(k) Plan Participation
My challenge at the NAPA Summit was to anticipate future 401(k) trends.  Here are eleven other underlying economic, demographic, and other trends that I believe will impact 401(k) plans over the next ten years:

  1. A 2013 study shows “all in” fees decline as plan assets increase – from a median of 127 basis points for plans with less than $10 million in assets down to 37 basis points for plans with $500 million or more.1   
  2. Nine states have adopted state retirement savings initiatives; 8 other states have considered legislation since 2012.2
  3. Participants who consistently participated from 2010 through 2015 had an average account balance of $143,436. Consistent participation = 401(k) success. Those in their 20s with 5 to 10 years of tenure had an average balance of $30,938; in their 30s with 10 to 20 years tenure – $83,948; in their 40s with 20 to 30 years tenure – $188,269; and in their 50s or 60s with 30 or more years tenure had an average account balance of approximately $320,000.3  
  4. At year-end 2016, total DC plan assets were $7.0 Trillion, while IRA assets were $7.9 Trillion. Most recent additions to IRAs came from rollovers. The IRS Statistics of Income Division reports workers rolled over $435 Billion to IRAs in tax year 2014, while, in the same year, only 11% of eligible workers contributed $63 Billion to IRAs.4
  5. As part of its Terminated Vested Participant Project Initiative, the Department of Labor, Employee Benefits Security Administration (EBSA) stepped up actions to locate missing participants.  In its 2017 report, the EBSA specifically noted that “EBSA helped terminated vested participants in defined benefit plans collect benefits of $326.7 MM.”5
  6. Leakage (payouts upon job change, hardship withdrawals, in-service withdrawals and loan defaults), according to the DOL, “appear(s) to reduce aggregate 401(k)/IRA retirement wealth by about 25 percent.”6
  7. Hardship withdrawals are expected to become more commonplace, prompting more leakage after 2018.7
  8. Millennials are the largest generation in the American labor force (35%, 56 million, ages 21 – 36 in 2017), more than the 53 million Gen Xers, 41 million Baby Boomers.8
  9. Today, more young adults (ages 18 – 34) live with their parents than a spouse.
  10. 80% of Millennials are expected to bank electronically by 2020 – up from 73% in 2014.10
  11. 71% of workers live paycheck to paycheck; yet 86% save in an employer-sponsored, individual account plan.11  

What is past is not prologue - Part 2
Again, assuming the current statutory and regulatory framework continues without significant change, here are the last three 401(k) trends or initiatives I expect to see plan sponsors pursue over the next ten years, and why:

  1. Aggregation/Consolidation: Aggregation/consolidation will improve plan efficiency (plan expenses decline as the number of participants and assets under management increase), while concurrently addressing the challenges of access, missing participants, and leakage. While retirement benefit “access” or “coverage” has been mostly unchanged at 70% throughout the past few decades,12  since 1982 all wage earners have had continuous access to a more than adequate, tax-preferred retirement savings plan – the Individual Retirement Account (IRA). Despite that, states are increasingly taking action to mandate retirement savings via IRAs. Simply, it is not an access issue, but a motivation issue. Consider participants who successfully prepared – mostly without automatic features. Because of turnover/tenure trends noted in the prior blog post, it was no surprise to see IRA assets exceed DC plan assets, nor that most IRA additions came from qualified plan rollovers. Turnover is also a trigger for missing participant issues and leakage.  Actions plan sponsors take to address post-separation leakage may also reduce in-service leakage. Changes that some plan sponsors may pursue include actions to: 
    • Pursue rollovers from prior employer and subsequent employer plans, at hire, while employed AND after separation; 
    • Pursue rollovers of tax deductible and after-tax contributions plus earnings thereon from IRAs; 
    • Add 21st Century loan processing, “electronic banking,” to facilitate post-separation loan repayment AND initiation; 
    • Curtail or eliminate hardship withdrawals; and   
    • Add Deemed IRA provisions to accept Roth IRA rollovers, enabling participants to make IRA contributions even after separation.     
  2. Catering to Millennials.  For the next decade or so, almost all new entrants and most new assets will come from the Millennial generation – a generation with unique needs and habits.    
  3. “All in One” 401(k). It is only another half-step to transform your 401(k) into a holistic financial wellness instrument once you have adopted aggregation/consolidation and electronic banking strategies.13  

All bets are off should we see significant change in legislation, regulation, judicial decisions or any combination of actions.  However, I am confident that I will be more accurate in my trend predictions than Congress was back in 1978 when predicting the impact of 401(k) plans on the federal budget!

Disagree?  Do you believe other trends are more likely to emerge over the next ten years?  Let me know where I went wrong.  Send me your thoughts on new trends you believe will be more significant and/or probable:  [email protected].  


1. D&T / ICI, Inside the Structure of Defined Contribution/401(k) Plan Fees, 2013: A study assessing the mechanics of the ‘all-in’ fee.  Accessed 4/17/18 at:  https://www.ici.org/pdf/rpt_14_dc_401k_fee_study.pdf   See also: NEPC, Defined Contribution Fee Survey, 2017.  For plans with less than 1,000 participants, administrative fees/participants averaged $90 and asset management fees averaged 60 basis points.  For comparison, for plans with more than 15,000 participants, the per participant administrative fee was $44 and the asset management fee averaged 39 basis points. Accessed 4/17/18 at:  www.nepc.com/press/nepc-corporate-defined-contribution-plans-report-flat...  
2. Urška Klančnik, Jim Malatras, Brian Backstrom, A New Frontier for Saving for Retirement? The Creation of State Retirement Savings Marketplaces, A Review of New York State’s Proposed Secure Choice Savings Program, 3/23/18, SUNY, Rockefeller Institute of Government, Accessed 4/17/18 at: http://rockinst.org/wp-content/uploads/2018/03/2018-03-20-New-Frontier-R...
3. Sarah Holden, Jack VanDerhei, Luis Alonso, Steven Bass, What does consistent participation in 401(k) plans generate?  Changes in 401(k) Plan Account Balances, 2010 – 2015, Tabulations from the EBRI/ICI Participant-directed Retirement Plan Data Collection Project, 10/24/17, Accessed 4/17/18 at:  https://www.ebri.org/pdf/EBRI_IB_439_Long-K.24Oct17.pdf   
4. ICI, The Role of IRAs in US Households’ Saving for Retirement, Dec. 2017, Accessed 4/17/18 at: https://www.ici.org/pdf/per23-10.pdf  
5. DOL, EBSA, Fact Sheet, Accessed 4/17/18 at:  https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/r...
6. Alicia Munnell, Anthony Webb, The Impact of Leakages on 401(k)/IRA Assets, February 2015, Accessed 4/17/18 at:  http://crr.bc.edu/wp-content/uploads/2015/01/IB_15-2.pdf  
7. Towarnicky, Hardship Withdrawals – An Attractive Nuisance Becomes More Attractive, 02/09/18, Accessed 4/17/18 at: https://www.psca.org/blog_jack_2018_5  
8. Richard Fry, Millennials are the largest generation in the U.S. labor force, Pew Research Center, 4/11/18, Accessed 4/17/18 at:  http://www.pewresearch.org/fact-tank/2018/04/11/millennials-largest-gene...
9. Jonathan Vespa, The Changing Economics and Demographics of Young Adulthood: 1975–2016, Current Population Reports, April 2017.  In 2016, 23MM young adults lived with their parents, compared to 20MM who lived with a spouse.  Comparatively, 40 years earlier, in 1975, 32MM young adults lived with their spouse, compared to 14MM who lived with their parents.  Accessed 4/17/18 at:  https://www.census.gov/content/dam/Census/library/publications/2017/demo...
10. Statista, 2018, Accessed 4/17/18 at: https://www.statista.com/statistics/455410/share-of-millennial-digital-b...  
11. Getting Paid in America, American Payroll Association, September 2017, Accessed 4/17/18 at: http://www.nationalpayrollweek.com/documents/2017GettinngPaidInAmericaSu...
12. Bureau of Labor Statistics, Employee Benefits in the United States, March 2017, 7/21/17 Accessed 4/17/18 at:  https://www.bls.gov/news.release/pdf/ebs2.pdf  
13. Towarnicky, Financial Wellness Via Your 401(k), 11/07/17, Accessed 4/17/18 at: https://www.psca.org/blog_jack_2017_15