Reflecting on Retirement Plan Predictions for 2023: A Year in Review
As we bid adieu to 2023, it's time to look back on the predictions we made earlier this year (link) regarding the competing priorities for retirement plan sponsors. The landscape was uncertain, but did these anticipated challenges truly unfold as expected? Let's delve into the predictions and analyze how they played out over the course of the year.
Financial Markets and Investment Selections
Looking back at 2023, the markets maintained their roller-coaster ride throughout the year, grappling with inflation and economic shifts. With the benefit of hindsight, the final trading days of 2023 capped a remarkable year of performance though it didn't always feel that way, even as late as October. The S&P 500 returned 24.2% for 2023 with 11.2% alone attributable in the 4th quarter. Additionally, the DJIA (the Dow Jones Industrial Average) finished near record highs. Driving this performance was easing inflation, a resilient economy and the anticipation of a Federal Reserve signaling lower interest rates potentially early in 2024 encouraged investors, particularly in the last two months of the year.
But the story of a positive return doesn't solely write the book on the year- ultimately, Retirement Plan Advisor recommended prudent investment selections and financial literacy & wellness need to continue to be a priority for retirement plan sponsors despite market downturns or upturns. Plan Sponsors need to ensure that their service teams (advisory, recordkeeping partners, etc.) are adequately guiding employees through these uncertain financial terrains.
Changing Technical Landscape and Cybersecurity
The trend of technological advancements as a tool for plan management continued to evolve. The reliance on tech solutions to address participant inquiries and data tracking soared. This upsurge, however, brought heightened concerns regarding data security. Many sponsors made considerable strides in adapting to the technical landscape while prioritizing cybersecurity measures to safeguard sensitive participant information. Cybersecurity will continue to a competing priority into the foreseeable future as Plan Sponsors want to provide their plan participants cutting edge education and retirement forecasting tools while managing increasingly skilled security hacks and increasingly complex data breaches.
Talent Acquisition and Retention through Retirement Plans
Companies that offered robust retirement benefits saw an advantage in attracting and retaining skilled employees. However, some plans faced challenges in adequately communicating the value of their retirement packages, leading to potential talent attrition. The SECURE Act will be driving cutting edge Plan Sponsors to consider their organization's benefits packages. With new Student Loan & Emergency Savings provisions available to add to their Retirement Plan in 2024, it’s imperative to consider if these new provisions are attractive to your employee population. In September 2023, a survey of 1500 US employees ranked Workplace Flexibility the number one non-salary compensation elements they considered most important, quickly followed by Bonus/Commission (64%), PTO (60%), and Retirement Plans - Company contribution/match (59%), with Healthcare Plans (53%) wrapping up the Top 5.
Financial Services Industry Consolidations and Service Support
The last decade has seen considerable consolidations among service partners in the retirement-specific and financial services industry, impacting the capacity of team members and limiting support available to plan sponsors to run their organization's retirement plans. The shifts in service dynamics caused some frustration among many administrators. Many sponsors reported a lack of the dedicated attention and services they once received, indicating the effects of industry consolidations. 2023 continued the trend of merger and acquisitions within Retirement Plan Advisors offices, while slowing down with larger financial institutions consolidations. Has your engagement with your Advisory team been impacted? Do you feel you are still having the dedicated resources you were sold, or in the name of efficiency have you been handed off to an team-member that might be under informed about your plans priorities and intricacies, overwhelmed by the number of plans they are managing, and ill able to respond to your questions and support needs in a timely fashion?
Government Regulations: SECURE 2.0 and Audit Priorities
In December 2022, SECURE 2.0 was signed into law, significantly impacting retirement plans.
Guidance from Treasury and Labor came out in spurts throughout the year with significant insight in August (when the IRS delayed implementation of Roth Catch Up Contributions for high earners until January 2026 due to industry requests in order to appropriately recordkeep payroll data) late November (when new Long-Term Part-Time Employee guidance was issued 38 calendar days before the provision was to be effective) and late December (right before Christmas, when a Grab Bag of 12 key elements was issued with 7 business days remaining in the year).
Additionally, the Department of Labor's ESG ruling influenced decision-making processes for Plan Sponsors and Committees (December 2022). Sponsors are now allowed to consider Environmental, Social, Governmental factors in plan level investments but must focus solely on retirement outcomes for participants and cannot sacrifice return or assume greater risk to achieve ESG goals. 2023 saw a coalition of 25 State Attorney Generals bring a lawsuit challenging the rule. A Texas Judge upheld the ruling a denied the AG's suite in September of 2023, but an appeal may be on the way. Possibly more to come into 2024, time will tell.
IRS and DOL audits focused on various aspects, ranging from compliance with new regulations to standard audit priorities. Each year both Treasury and Labor signal what will likely be upcoming priorities for the incoming year
In our evaluation of these five priorities, did the year align with our predictions? Certainly some of these items can be neatly wrapped up in a year - markets are frequently cleanly evaluated from what occurred with the parameters of January 1st to December 31st. Longer term items - legislation, trends, evolving head & tailwinds may often contain a period of several years to fully appreciate the impact on an industry. We'll certainly continue to monitor these outstanding items headed into 2024. Check back here soon to see what our Competing Priorities for Retirement Plans in 2024 will be!
If you're looking for a Retirement Plan Advisor to help you start or manage your retirement plan, or understanding how any of these priorities impact your plan currently, please send an email to us today, Christina.Tunison@lpl.com.
This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
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