Hello and welcome to this week's edition of 401k Real Talk. This is Fred Barstein Contributing Editor at WealthManagement.com's RPA Edge and CEO at TRAU, TPSU & 401kTV – I Review everything from the past week's stories and pick out the most relevant and interesting ones offering an open honest and frank discussion that you wouldn't get anyway. So let's get real!
Another expert, Allison Schrager, a Bloomberg columnist, predicts the disappearance of tax-deferred, workplace 401k plans in the next 10 years. For years, New School professor Teresa Ghilarducchi has advocated a federal solution, while recently Boston College's Alicia Munnell suggested that the tax deferral, which amounts to 1% of GDP, should be used to support Social Security.
While Schrager argues that tax deferral should go away, she believes a more liquid emergency account should be made available to allow people to save.
And while not the same thing, IBM recently announced that the 5% match on 401k contributions will be deposited into a DB-like plan, which could further reduce DC assets.
So, as the debate continues, the success of DC's plans to boost IRAs accounting for over $20 trillion and massive lobbying by providers will lead Congress to eliminate the remote tax deduction at best, but it will force the industry to do better if they want to. to keep the discount.
Addressing the hardship caused by assets in multiple DC plans and IRAs, The GAO made certain recommendations reflecting 6 other countries. They suggested that a federal agency be tasked with creating a panel of participants and allowing automatic plan-to-plan transfers while providing guidance on the account consolidation process.
The industry is addressing the issue through the Portability Service Network, which now includes 6 of the largest DC data holders accounting for 60 million participants, while the DOL is slated to establish a database by 2025.
The issue is real, but it requires industry collaboration, better technology and perhaps data sharing, which have been hard to come by.
No doubt the explosion of small plans due to state mandates and SECURE 2.0 tax credits as well as the convergence of wealth and retirement at work has piqued the interest of wealth advisors, but according to Envestnet Co-CIO and Group President Dana D. 'Auria, more and better technologies are needed.
Along with data, for wealth advisors to be able to efficiently help clients manage their DC plan and attract more affluent clients, there needs to be integration with the wealth technology they use and eventually apps on which consumers rely.
Envestnet is at the convergence of wealth and retirement with over 110,000 advisors on their platform. Along with other financiers such as Pontera and newly established record holders, trusted contractors and practice management providers will be biased.
The DC industry that has historically discouraged do-gooders has changed its tune and now must embrace the 275,000 non-retirement-focused wealth advisors to help the 12,000 experts who can't afford all the new plans and the convergence of wealth, exit pension and workplace benefits.
The theme of Fidelity's 2023 Plan Sponsor Attitudes Survey is “Increasing Complexity Creates Opportunities for Greater Advisor Influence.” As plan sponsors wake up to the impact a loyal objective advisor can have on their plan and employees, they will demand more, which will cause mass advisor turnover.
Read my latest WealthManagement.com column about the disconnect between what plan sponsors value and how RPAs value themselves and why there will be more advisor due diligence by 3st parties as well as councilors had advocated for record keeping and investment.
So those were the top stories from last week. I listed some other stories that I thought were worth reading:
Please let me know if I missed anything or if you would like to comment. Otherwise, I look forward to talking with you next week on 401k Real Talk.