According to Invesco, eight trends materialized during 2014 that it says will be hot for retirement plan sponsors in 2015. Here's what they say you should be watching for.
1. Continued shift toward 401(k)-style plans and expansion into other markets.
Invesco says that while corporate and tax-exempt marketplaces have already made the move toward defined contribution plans, what's next is a similar move on the part of government. Hybrid plans will be part of that picture as well, as they have been for Tennessee and Rhode Island.
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2. Emphasis on behavioral finance and retirement readiness.
Since the onus for making sure retirement funds are available has shifted to the individual, retirement committees have had to shift from focusing solely on fiduciary responsibilities to paying more attention to the behavior of participants. Using behavioral finance to affect the behavior of plan participants and adopting measures such as auto escalation to be sure they increase their savings rates are playing an increasingly larger role.
3. Consolidation of investment menus.
One way to increase the likelihood that employees will participate in a retirement plan is to limit their choices, so that they are not so overwhelmed that they simply walk away. As sponsors try harder to ensure better participation rates, look for consolidation of choices to continue.
4. Adding asset classes to broaden diversification.
Investment menus may be shrinking, but asset classes are being increased as sponsors look for ways to hedge against inflation or rising interest rates. TIPs, REITs and short-term bond funds, as well as alternatives, are now being considered or added in.
5. Closer attention to fees.
As sponsors look to reduce expense ratios and control plan costs, watch for even greater adoption of alternative investment vehicle structures. For 401(k) plans, these could include measures such as passive investments, index funds, collective trusts, separate accounts and ETFs. However, 403(b) plans — prohibited from using collective trusts — will likely still be exploring the issue past 2015.
6. Increased use of QDIA-appropriate funds.
Qualified default investment alternative (QDIA) funds are still on a growth trend, says Invesco, although because of smaller plans' economic constraints they're likely to be limited to larger DC plans.
7. Participants' quest for guaranteed income.
One trend that doesn't look to end any time soon is participants' desire to ensure they don't run out of money. Products and services to provide a guaranteed stream of retirement income, and regulations to protect participants who want to participate, look likely to increase over the coming year. Sponsors will have to watch closely to be sure any such products are appropriate for their plans.
8. More regulation.
Not only are more regulations concerning retirement plans likely to come down the pike in 2015, they'll also continue to come under close scrutiny. In addition, 2015 is likely to see an update on new fiduciary rules — which could bring broad changes.
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