Stay in the loop with the major U.S. retirement industry trends. Learn how to navigate regulatory changes and fine-tune your retirement strategies as plan administrators.
The retirement landscape in the U.S. is evolving rapidly. While an aging population is grappling with the possibility of outliving their savings, the average household retirement funds are falling significantly short of creating a safety net for future retirees. At the same time, the influx of tech-savvy Gen Z employees and legislation updates are changing sponsor expectations, highlighting the need for smooth digital experiences. Together, these shifts are driving the defining retirement industry trends of the moment.
We anticipate four key trends will shape the future of retirement for the next decade:
- There will be a greater emphasis on better connectivity that’ll make it easier for sponsors, plan administrators, and participants to share information in real time.
- Automation is set to become a bigger part of operations for plan administrators, allowing them to streamline processes, reduce manual tasks, and boost overall efficiency.
- Recordkeepers and TPAs will prioritize improving user experiences to win in an increasingly competitive market.
- Lastly, staying on top of changing regulations will get trickier, demanding proactive strategies and innovative solutions to stay compliant and reduce risks.
In this article, we'll explore these key retirement industry trends, their drivers, and what lies ahead for retirement service providers in 2024 and beyond.
What’s driving the shift in the retirement industry
Before diving into the top retirement trends, let's explore the key drivers behind this transformative shift:
- The looming retirement crisis in the U.S.
- Recent legislative changes
- Evolving sponsor expectations
The looming retirement crisis in the U.S.
The retirement crisis in the U.S. is starkly evident. In 2023, surveys showed that Americans feel they'll need around $1.27 million to retire comfortably. However, half of American households have no retirement savings at all. Among those who do, the savings are often insufficient, with less than $90,000 in retirement accounts on average. Over half of small to mid-sized business (SMB) employees lack access to a 401(k) plan, making it difficult to save for retirement through automatic payroll deductions. What’s more, 64% baby boomers today report moderate to high levels of stress about their retirement savings.
If not addressed soon, this crisis could result in a future in which many retirees heavily rely on government assistance programs. This strain on public resources could lead to increased taxes and budget deficits in the years to come.
Recent legislative changes
To combat the impending retirement crisis, the federal government introduced several new pieces of legislation in recent years, including the Setting Every Community Up for Retirement Enhancement (SECURE) Acts 1.0 and 2.0. Some states have augmented the SECURE Acts with state-mandated retirement plans.
As these new laws aim to expand access to workplace retirement plans and boost individual retirement savings, they’ve introduced a host of new rules that affect plan eligibility, compliance standards, and plan designs. This is driving plan administrators to quickly adapt to the changing protocols and revamp their operations to stay compliant and profitable.
Shifting sponsor expectations
To reduce the coverage gap, SECURE 2.0 encourages SMB employers to start new 401(k) plans by offering several incentives like tax credits and Pooled Employer Plans (PEP). Naturally, these initiatives have led to a surge in first-time SMB sponsors looking to set up retirement plans. But unlike larger enterprise organizations, they don’t have dedicated HR teams to execute these plans. As a result, SMB employers are searching for plan administrators that make sponsoring a plan as easy as possible. They are on the lookout for retirement solutions that can handle admin tasks and work seamlessly with their existing payroll tools—payroll integrations are the primary motivator for one-third of plan sponsors seeking to work with a digital recordkeeper.
In addition to painless administration, today’s sponsors have greater expectations when it comes to their 401(k) plans—they expect greater personalization in their retirement plans as well as a tailored and targeted experience for their employees throughout the life of the plan. This demand is likely to grow as tech-savvy Gen Z participants account for a larger and larger share of the workforce.
Key retirement industry trends to watch out for
To effectively respond to the needs of the hour, plan administrators need to watch out the four major retirement industry trends we previously mentioned, which impact compliance, sponsor experience, automation, and connectivity.
Trend 1: Compliance is going to be difficult
The first major trend that will affect plan administrators in the next few months is the increasing difficulty to stay compliant, owing mainly to SECURE 2.0.
SECURE 2.0’s focus on participant eligibility will push administrators to rethink how they handle compliance. For example, Section 101 of SECURE 2.0 mandates automatic enrollment for all participants, while Sections 125 and 603 introduce new criteria for part-time employees and catch-up contributions—making eligibility checks more critical and complex.
This means more data will be shared between sponsors and administrators than ever before. Recordkeepers need to stay sharp on eligibility changes and set up automated workflows to quickly enroll participants to avoid falling out of compliance by accidentally leaving out newly eligible employees.
Note: Read our latest whitepaper to learn how plan administrators can use automation to improve compliance under SECURE 2.0.
Trend 2: Sponsor experience will be a top priority for recordkeepers and TPAs
The proliferation of SMB sponsors, coupled with the changing expectations of sponsors of all sizes, are driving a greater focus on customer-friendly retirement services and technology to gain a competitive edge in the rapidly growing retirement market.
Employers are going to pick retirement service providers based on the types of plan they support and how much of the administrative work they can outsource. Plan features like automatic enrollment, self-service tools, faster onboarding, payroll integrations, and on-demand customer support are going to be top priorities for sponsors.
Needless to say, recordkeepers and third-party administrators (TPAs) that offer significantly better service to their clients will win the long race of new customer acquisition and increased customer loyalty. However, this is likely to put a strain on the plan administrator’s Operations, Engineering, and Customer Success teams to improve user experience and operational efficiency.
Trend 3: Automation will become key to efficient 401(k) plan administration
Under these circumstances, all plan administrators need to quickly scale their operations to keep up with the compliance changes and shifting sponsor expectations. They will be required to move on from the status quo of manual admin work and automate much of the day-to-day operations, from validating sponsor data and automatic enrollment to investing funds and automated deduction updates. In fact, studies show that 93% of advisors agree working with a tech-forward recordkeeper will make it easier to manage their plans.
Hiring to keep up with an increasing workload isn’t scalable or sustainable, so plan administrators will be driven to invest in technologies like API-based payroll integrations to operate more efficiently. The need for tools that provide reliable, accurate, and automatic access to participant and deferral data will continue to rise as manual data-gathering methods like SFTP fail to keep up with the rising automation needs of plan administrators.
Trend 4: Robust connectivity will play a crucial role
The U.S. retirement industry is witnessing a growing demand for better connectivity. Today, employers, as users, demand greater connectivity between the tools in their technology stack, including retirement systems. Our 2023 survey of over 1,000 HR professionals found that 97% expect their systems to integrate with other tools, and half of them feel stressed by switching between tools all day.
Moreover, as technology evolves and new regulations like SECURE 2.0 focus more on participant engagement, it’s becoming increasingly important for sponsors, their payroll providers, and plan administrators to easily connect and share data in real time to simplify enrollment, investment monitoring, and drive engagement.
These new demands will continue to push plan administrators to adopt new technologies that offer increased connectivity and streamline the user experience, even within a highly fragmented U.S. payroll market.
What’s next
SECURE 2.0 is only the beginning of a wave of legislative changes headed our way. According to predictions at this year's NAPA Summit, we can expect more significant legislation like the Automatic IRA Act of 2024 that’ll continue to shape plan requirements and eligibility criteria over the next decade, impacting everyone involved—from advisors and sponsors to TPAs and recordkeepers.
It's a dynamic time for the industry, and staying informed and adaptable will be key for all stakeholders. Investing in new technology is the number one way for recordkeepers—and really, any business offering retirement services—to thrive in this evolving landscape. To learn more about these trends and get actionable tips on how to adapt, check out Finch’s latest whitepaper: The Changing Retirement Landscape: How 401(k) Recordkeepers Can Thrive Under SECURE Act 2.0.
