Tailored plans will replace one-size-fits-all
In 2022, employers will need to take a creative and personalized approach with retirement, making it part of a holistic financial wellness strategy.
The state of employee retirement readiness runs the gamut from those prepared for retirement to others needing help before they’re prepared to leave the workforce.
Four out of 10 workers have less than $10,000 saved for retirement
It's been 15 years since the Pension Protection Act introduced the widescale use of automatic enrollment and other features critical to the long-term financial security of millions of Americans. Since then, the SECURE Act of 2019 gave retirement plans and retirement planning a further boost.
Still, more than half of older workers have saved less than $50,000 for retirement,1 40% have saved less than $10,0002 and one quarter don't have any retirement savings at all.3
Congress is expected to help remedy the situation in 2022 (if not earlier) through the Securing a Strong Retirement Act (SECURE Act 2.0), which could give retirement plans and employees a turbo boost to 401(k)s, not to mention opening the door for retirement plans to a whole new segment of workers
Organizations, seeing the impact of financial stress on the workplace intensify during the pandemic, are also taking action: They're making retirement planning part of an overall financial wellness strategy that aims to relieve stress and improve productivity.
1 Insured Retirement Institute, Retirement Readiness Among Older Workers 2021, accessed October 12, 2021.
2 GO Banking Rates, “Here’s How Much People Have Saved for Retirement in Every State,” June 23, 2020.
3 Statista, “A Quarter Of Americans Have No Retirement Savings,” June 16, 2020.
Here’s what to expect for plan sponsors in 2022:
The SECURE Act 2.0 could fundamentally change the rules of the game for employee savings and retirement plans
Legislation will provide access to many workers who don’t have current access to a retirement plan
1. The SECURE Act 2.0 will be a game changer
Betting on Congress to pass legislation is unlikely to win many wagers, but it remains likely that the SECURE Act 2.0 will become law in 2022.
And when it does, the SECURE Act 2.0 will represent one of the biggest changes to employee savings and retirement plans in a decade.
Changes include expanding 401(k) auto enrollment, enhancing the saver’s credit, delaying required minimum distributions (RMDs) and providing tax credits for small employers and non-profit organizations that set up savings and retirement plans.4
Passage of the SECURE Act 2.0 not only has the potential to make existing plan participants better prepared for retirement but would also provide access to those employees who don't have a retirement plan.
Employers should be aware of these changes and be prepared to act when they become the law of the land. Those changes can mean updating their current retirement plans or starting new ones altogether.
4 National Association of Plan Advisors, “What’s in the New SECURE Act 2.0?” May 5, 2021.
More than half of the U.S. workforce will look for a job in the next year, but only 44% think they have enough saved for retirement
2. Retirement plans will no longer be optional
Employers are discovering that in a massive labor shortage, strong employee benefits — including a strong retirement plan — can mean the difference between attracting and retaining workers and not having employees at all.
What's more, many employers will not have a choice: State-sponsored plans such as those in California and elsewhere will require employers to either offer their own small business retirement plan or participate in the state-sponsored one.
State-sponsored plans are often basic with lower contribution limits and restrictions on owner participation, whereas a small business 401(k) provides higher contribution limits and additional features.
For many workers, a solid retirement plan is essential for their financial wellbeing and may be just as important as health benefits. And if employers are wondering about the impact on retention, only 44% of Americans think they have enough money to keep them funded throughout retirement,1 but more than half of the workforce say they'll likely be job hunting within the next year.5
The context of employees looking for work in the shadow of COVID-19 — reassessing their work, family lives and goals — shows a higher salary might not be as effective as providing generous benefits, such as larger employer matching contributions on workplace savings plans.
5 Bankrate, “Survey: 55% of Americans expect to search for a new job over the next 12 months,” August 23, 2021.
Financial Wellness Takes Center Stage
Learn about how financial stress is taking its toll on employees and how financial wellness initiatives can be part of the solution.
Employees who work remotely are more likely to want personalized advice and often less interested in default investments
3. Plan sponsors will embrace managed retirement accounts
Improvements to workplace retirement plans have largely focused on features such as automatic enrollment and escalation, and defaults to target-date funds. But for many employees, that's not enough to get them retirement ready.
Managed accounts may fit the bill.
How? With managed investment accounts, a professional money management service selects and packages funds for an individual's retirement portfolio. In 2019, 37% of retirement plans offered managed accounts and 63% of participants had access to them, but only 5% of participants used them.6
Remote working lends itself to this type of approach, as remote employees are often less interested in default investments such as target-date funds and are more likely to opt for personalized advice.7
As a result, we expect more plan sponsors to offer options such as managed accounts. Organizations that commit to managed accounts will not only help their employees' path to retirement, but their financial wellbeing.
6 Vanguard, How America Saves 2020, June 2020.
7 Morningstar, Out of Sight, but Not Out of Mind: Helping Remote Workers with Retirement Managed Accounts, accessed October 13, 2021.
Bad actors have hit plan custodians, hacking accounts — and emptying them
4. Cybersecurity issues won’t go away
Retirement plan sponsors and participants are hardly exempt from the dangers of cybercrime.
The 2020 CARES Act allowed early, penalty-free distributions from 401(k) plans for participants affected by COVID-19. The early distribution option and heightened risks of remote work have made plan participants a major target for cyber theft.
And it's not just employees that need to be worried. Security breaches at plan custodians and administrators have led to participants’ accounts being hacked and emptied, resulting in litigation against plan sponsors.8
The U.S. Department of Labor (DOL) has issued best practices that fiduciaries should follow to ensure the highest level of cybersecurity risk mitigation for the $9.3 trillion Americans have saved for retirement.9
These DOL best practices include the following:
- Maintain a formal, well-documented cybersecurity program that includes periodic cybersecurity training.
- Implement annual third-party audits of security controls.
- Ensure that any assets or data stored in a cloud or managed by a third-party service provider are subject to appropriate security.
- Have an effective business resiliency program addressing business continuity, disaster recovery and incident response.
- Encrypt sensitive data.
8 GreenbergTraurig, “Coping with the Increase in 401(k) Cyberattacks and Fraudulent Plan Distributions, June 18, 2020.
9 MHM, “Cybersecurity and Retirement Plans: What You Need to Know,” June 8, 2021.
Improving engagement demands retirement education and corresponding financial wellness programs
5. Financial wellness and retirement plans unite
Roughly 65% of Americans are considered lacking in financially literacy,10, 11 while a similar percentage of adults say that money worries are a significant stress in their lives.12
As a result, financial stress contributes to loss of productivity. Financial wellness programs, however, can make a major impact in helping reduce financial stress.13
So instead of just addressing the need to save for retirement, employers that want to improve engagement will make retirement plan educational services and corresponding financial wellness programs part of a holistic financial wellness effort.
For instance, a financial wellness initiative that combines education with coaching can help employees with managing debt, which will help them start saving for retirement.
This kind of program stresses the importance of emergency savings, keeping a budget and avoiding and reducing debt. Key are initiatives that go beyond education but have tools that can demonstrably improve employees' finances.
10 Audra R. Sherwood, Differences in Financial Literacy Across Generations, accessed October 13, 2021.
11 Possible Finance, “32 Must-Know Financial Literacy Statistics in 2021,” February 15, 2021.
12 American Psychological Association, Stress in America 2020, accessed October 13, 2021.
13 The Wharton School, “What's Behind the Growth of Financial Wellness Programs,” February 20, 2021.
Moving forward in 2022
In 2022, retirement benefits will experience growth and adaptation, through external forces like the SECURE Act 2.0 and internal decisions that will change how plan sponsors present plans to employees. Employers realize the impact that financial security has on productivity and retention. And plan sponsors will face cybersecurity issues with renewed urgency.
All of the changes will require preparation — and well-prepared plan sponsors will have plan participants who are well-prepared for retirement.
HUB Retirement and Private Wealth employees are Registered Representatives of and offer Securities and Advisory services through various Broker Dealers and Registered Investment Advisers, which may or may not be affiliated with HUB International. Insurance services are offered through HUB International, an affiliate.