NTSA Executive Director Brent Neese offered a look at the state of the retirement industry at a Jan. 28 session of the NTSA 30th Anniversary Summit.
The first people to establish 401(k)s after they became available are beginning to retire, Neese noted, and remarked, “Things don’t look so good. “ He cited statistics saying that 42% of Americans will enter retirement broke, and that suggest that the Social Security Trust Fund will run out of money by 2034. And the Pension Benefit Guaranty Corporation (PBGC) insurance plan for multi-employer plans will be broke too by 2025 if there is no action.
“The broken three-legged stool and the resulting crisis is crying out for intervention,” said Neese. Trends he discussed include the following.
Federal level. There is federal legislation before Congress, and Rep. Richie Neal (D-MA) taking the helm of the House Ways & Means Committee may bode well, since he is an advocate for retirement plans and retirement saving. But Tax Reform 2.0 could again include provisions that would affect retirement plans and incentives, he said.
State action. “Changes to state pension plans have never been as numerous as they have since the Great Recession,” he said, adding, “Since 2009, nearly every state has instituted some reforms, tailored to their specific circumstances.”
Auto-enrollment. Neese called the increase in auto-enrollment in the 401(k) market “robust,” but reported that the tax-exempt market has been “not as quick to adopt it”; just 6% of public school systems have. Half of those that don’t make it available attribute that to laws that interfere with doing so, Neese said.
403(b) vendor consolidation. Neese also observed that many states, cities and public school systems that offer 403(b) plans are consolidating the vendors they work with to do so, noting: “Consolidation does result in lower fees, but our research also shows it results in lower participation and lower savings rates.” This, he said, is because it disrupts the client-advisor relationship. “The number one issue driving participation is choice,” he said.
But Hope
Neese recounted for attendees the many actions the American Retirement Association and NTSA took in the last year and told attendees, “There will be a lot of additional work to do” this year. “Your stories can make a big difference,” he added. And he struck a hopeful note, remarking, “The three-legged stool is broken — but it can be fixed.”
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