The retirement plan industry is heavily impacted by inflation as it affects the purchasing power of participants’ savings and investments. It has a significant effect on people’s 401(k) accounts. As prices in the economy increase, retirement plan administrators must be aware of how inflation will affect their 401(k) portfolio so they can adjust their strategy accordingly.
Inflation in the U.S. is driven by the Consumer Price Index (CPI), which measures the average prices of food, fuel, and energy. It recently reached 9.1% for the year ending June 2022, the highest 12-month rate since December 2008. As a result, retirement plan administrators must factor in that participant savings may lose some of their purchasing power over time.
Challenges faced by plan sponsors/employers
Plan sponsors are already facing the challenge of labor shortages caused by The Great Resignation. In addition, inflation adds to their problems as employees expect a competitive 401(k) in terms of matching employer contributions.
The critical challenges of plan sponsors are:
- Employee retention: Employers struggle to retain quality employees as they seek higher wages, more benefits, and increased retirement contributions. Responses to Betterment’s Survey indicate that employees prioritize jobs offering 401(k) and expect employer-matching contributions.
- Hiring the best talent: Attracting the best candidates while controlling recruitment costs has become challenging. Top talent prioritizes financial benefits, and 65% of employees rate a high-quality 401(k) plan as a motivator.
- Rising demand for 401(k) matching programs: Employers are pressured to provide a 401(k) matching program to remain competitive. As employees value it, 92% of employers offer a matching contribution for their 401(K) plan.
How can retirement plan providers help clients?
Retirement plan providers can help clients create a comprehensive retirement plan that addresses their business and participant needs. They help plan sponsors understand the complexities of their retirement plan, such as investment options, employee eligibility, and employer contributions.
Retirement plan service providers can help plan sponsors through the following:
- Offer 401(k) plan options: Retirement plan service providers can provide their clients with various 401(k) plan options, such as traditional, Roth, and other custom plans based on sponsor needs.
- Focus on financial wellness: Retirement plan service providers can help Plan sponsors create a comprehensive financial wellness strategy and provide ongoing support to plan participants. It may include educational resources, one-on-one counselling services, webinars or retirement planning and investing seminars.
- Help plan participants save more: From adopting automatic enrollment to discussing the SECURE Act with clients, plan administrators can help improve the plan’s performance. It is important to be aware of recent changes in 401(k) rules and regulations, such as the elimination of Required Minimum Distributions (RMDs).
- Provide plan benchmarking analysis: Retirement plan service providers should work with plan sponsors to analyze their current plans and help them compare their performance against other plans in similar industries.
- Use technology to save costs: Transitioning to a digital platform can significantly reduce the costs of maintaining and administering a retirement plan. In addition, utilizing technology for plan communications, participant enrollment, and fund selection can help streamline the process and increase efficiency.
Stay relevant and reasonable using technology
Retirement plan service providers such as recordkeepers and 401(k) plan administrators can combat inflation using technology. Automated plan tools help keep costs low, allowing plan administration service providers to remain competitive in the marketplace and provide a reasonable retirement plan for employees.
Congruent Solutions offers comprehensive retirement plan administration software and service, which can help to reduce the administrative burden and costs associated with managing a retirement plan. Our automated platform uses AI and Cloud computing to ensure compliance and security of participant data. Ride the inflation wave by keeping plan administration and recordkeeping fees constant and delivering better value to clients.
Contact our team today to get expert advice.