A crystal-ball view of retirement plans in 2024: A 4-point plan sponsor priority checklist

As ideas on how best to help Americans increasingly at risk of running out of money in retirement continue to advance, plan sponsors will need to stay abreast of changing regulatory and compliance requirements, evolving participant needs and expectations, and technology and innovation trends.

At TIAA, we discussed some of these concepts and topics last fall at our first-ever consultant forum, TIAA TMRW, specifically designed for the consultant marketplace. We wanted to educate consultants and others on what’s happening from a fiduciary legislative standpoint, the 403(b) market, updates in plan design, and more. While we can’t predict the future, of course, we believe we have a good grasp on what’s happening in the industry. Here are details on four major trends that could affect recordkeepers, consultants and plan sponsors in 2024.

#1: Recordkeeping – Expect more emphasis on participant services  

Even with thousands of participants within a retirement plan, the reality is, only a fraction take advantage of the advice services offered. There is still a large pool of people who need help and either don’t know what services are available or are too overwhelmed by what is presented to them.

We are seeing more recordkeeping firms that historically have not been involved in the participant service space continue to evaluate entering this market, something that is expected to continue this year. We are seeing more consultants bringing a participant advice solution to market, using this as an opportunity to diversify and bring in another revenue stream for their firms. It is important to note that understanding what the service offer is and the goal of the solutions will be critical to plan sponsors. Thus, it is worth asking a question such as, “Is the end-goal to keep participant assets in the plan or move them out of the plan to other outside vehicles?” Ensuring the participant advice service aligns with the plan sponsor’s objectives for its plan is critical. There are benefits to participants and even plan sponsors when assets remain in the plan. A key component of TIAA participant advice is to help participants maximize their in-plan opportunities.

#2: Consultants – lifetime income within defined-contribution plans on the rise 

The uptake in retirement income within defined-contribution plans will continue to grow this year, especially as it relates to consultant activity, interest and use.

Consultants use retirement income to differentiate their services and bring what some would say is a “thought-leading industry concept” to their clients that, frankly, is needed by participants. According to the U.S. Bureau of Labor Statistics, as of March 2023, only 10% of non-union private sector workers had access to defined-benefit retirement plans, something that used to be a mainstay for the American worker. Meanwhile, retired workers receive, on average, just $1,907 as of January 2024, according to the Social Security Administration. To that end, one of the things that TIAA is spending the most time on is educating consultants and firms on retirement income products and solutions that can ensure that more Americans can cover their daily living expenses and ensure they don’t outlive their savings in retirement.

#3: Plan sponsors – 403(b) plans will continue influencing 401(k) plans

Looking back, five or 10 years ago, everyone was trying to make 403(b) plans look like 401(k) plans. And now, the reality is, even the legislators and regulators have realized there is a need for lifetime income products in defined-contribution plans. The pendulum has swung the other way.

Historically, 401(k) plans were seen as a savings plan to supplement defined-benefit pensions and Social Security, but the reality is, they have become the primary retirement plan for many Americans. Thus, interest in the ability to provide a defined-benefit-like income stream from these plans has grown.

#4: Looking ahead for all – changes in plan design

Getting people into retirement plans is just as important as educating them on how to make the best use of them. We’re going to see continued focus on automatic enrollment and auto-escalation. (SECURE Act 2.0 requires new plans to have auto-enrollment and auto-escalation features. Newly eligible employees must be enrolled automatically, starting at contribution levels ranging from 3% to 10% of pay.) It sounds basic, but these features are critical from a plan design perspective. Additionally, we’re likely to see an increase in Roth account adoption, which is, in part, also an impact of SECURE 2.0. Under SECURE Act 2.0, if you are at least 50 years old and earned $145,000 or more in the previous year, you can make catch-up contributions to your employer-sponsored account, but it must be on a Roth basis. Although the implementation of this rule is postponed until 2026, we anticipate clients will take steps to get ahead and work out the kinks with their participants.

More distribution options on the horizon?

We have also seen plans considering different types of distribution options, exploring ways to expand flexibility in the ways participants can access their retirement accounts. Some plans may have a limited number of choices as it relates to this, but plan sponsors are thinking through the options they can provide to retirees or participants for accessing their money or developing their own retirement income streams.

We’ve heard from some consultants who suggest considering other distribution options, like making an annuity, rather than a lump-sum distribution, the default form of benefit. While this may sound radical, participants would be able to change the distribution manually, and it may encourage them to consider the annuity route. As no one can truly see into the crystal ball, it will be interesting to see where legislation and regulators look next and if consultants or plan sponsors push the envelope with innovative solutions.

Related: Is this the year of in-plan retirement income solutions? 401(k) trends to watch in 2024

With public interest in retirement challenges growing and the urgency to fix things increasing, the retirement services landscape will continue to evolve, with a continued emphasis on accessibility to plans and critical design changes that facilitate sustainable income streams.

Plan sponsors and consultants must remain vigilant in learning more about and adapting to these changes. It could mean the difference between Americans retiring worried and concerned – or well and confident.

David Swallow is Institutional Regional General Manager, South Central Retirement Solutions, at TIAA.