Retirement plan administration is expected to be a growth area for retirement plan service providers in 2023. Several trends will drive this growth, including an increased number of Americans over 65 and a rising inclination towards defined contribution plans. The demographic shift means more people will need assistance with their retirement planning. As more employers move away from traditional pensions, financial planners specializing in retirement plan servicing will be in high demand.
The market for defined contribution (DC) retirement plans has become increasingly competitive in recent years. However, your retirement firm can take advantage of this growth opportunity with the right approach.
1. Better opportunities: DC plans can represent an excellent opportunity for retirement plan service providers in the coming year. According to the WTW report 2022: The Next Evolution of DC Plans Survey, 38% of employers offer their employees an innovative contribution strategy. Under this, employees can direct their contributions towards student loan debt or other savings accounts. Another 23% allow them to contribute to their 401(k) plans from sources other than their salary. Altogether, this offers a plentiful market opportunity for plan administrators and recordkeepers.
2. Uninterrupted contributions: 401(k) contributions are not impacted by fluctuations in the financial markets. The contribution occurs automatically with every pay cycle, regardless of market volatility. As the number of participants is growing, so will the regular contributions. Therefore the demand for recordkeeping and plan administration services will increase in 2023.
3. Increased use of technology: The proportion of millennials joining the workforce is increasing steadily. The US Bureau of Labor Statistics predicts 75% of the workforce to comprise hyper-connected and tech-savvy individuals by 2030. It will open up greater opportunities for plan administrators and recordkeepers to serve clients better while managing costs. Automation of routine processes will ensure better plan outcomes. Self-service solutions and Robo-advisors are already widely adopted to meet evolving participant needs.
4. Improving employer preferences: According to survey findings of J.P. Morgan Asset Management, small business owners have started feeling more responsible for their employees since the breakout of the COVID-19 pandemic. Out of the total number of businesses surveyed, one-third plan to offer a 401(k) plan, while others feel it helps with employee retention. Similarly, a report from Pew Research indicates auto-enrollment is helping ensure more plan participants can benefit from 401(k) plans offered by their employers.
Pressing fees and increasing competition has kept recordkeepers and plan administrators under pressure. However, the chances for growth in 2023 are high as businesses have started to feel the need to offer retirement plans. The pandemic amplified these trends, which is good news for 401(k) plan administration providers.
As the retirement landscape continues to evolve, service providers that can offer innovative solutions will be well-positioned for success in 2023 and beyond. Plan sponsors are increasingly looking for ways to reduce fees and expenses, so service providers offering cost-effective solutions will be in high demand. Furthermore, participants are becoming savvier about their retirement options and demanding more investment choices, so providers offering a wide range of investment options will also be in high demand.
There is a lot of potential for growth in the coming years, so if you are a provider of 401(k) plans, now is the time to start positioning yourself for success. Keep an eye on these trends and offer your clients cost-effective solutions and a wide range of investment options.