Retirement Plan Experts Do Not Foresee Social Security Privatization Any Time Soon, According to Diversified Investment Advisors' Just Released Modified Delphi Study
January 10, 2005 10:45 AM US Eastern Timezone
PURCHASE, N.Y.--(BUSINESS WIRE)--Jan. 10, 2005--While lawmakers debate the potential impact of private, self-directed Social Security accounts, most retirement plan experts (64%) do not believe it will actually happen by the end of the decade, according to Prescience: Expert Opinions on the Future of Retirement Plans, a just-released modified Delphi study conducted by Diversified Investment Advisors. Diversified conducted the study to provide insights on the retirement industry's future to executives responsible for retirement plan management to enable them to develop and evaluate strategic direction.
Overall, the study's panel of experts foresee some changes in retirement plan regulation and taxation, but none that will affect the fundamental framework of the business. For example, 63% of the experts agreed that legislation to create individually managed after-tax retirement savings accounts will pass and change the dynamics of the retirement plans market. However, 87% of the experts also agreed contributions to retirement plans will remain free of income tax.
"Regardless of the outcomes of the debates and proposed reform around retirement plans, the retirement plan industry is expected to grow substantially during the second half of the decade," explained Eric Henon, a vice president of Diversified Investment Advisors. "Most panelists expect that retirement plan assets will grow from $11 trillion today to between $15 trillion and $19 trillion by 2010."
"This industry expansion is being fueled by many factors: the sheer number of baby boomers currently in their peak earning years; a more acute awareness of the need to save for retirement and such factors as 'catch-up' contributions, for example. The debate alone about the fate of Social Security is causing more people to be proactive about their retirement savings," Henon added.
Among the Diversified Delphi study's other key findings were:
-- While the experts were evenly split on whether the attitude toward saving and the propensity to save will improve significantly, 75% of the panelists agree that one-third of individuals age 65 to 74 will be working. Further, nearly 75% of the experts also agreed that most people who choose to work in retirement will continue to save for old age during that time.
-- The changing concept of what constitutes a family will challenge spousal consent laws, according to 68% of the experts.
-- During the second half of the decade, panelists projected that defined benefit plan assets will shrink to 25% of the total compared with 40% today.
-- 57% of experts agreed that cash balance and pension equity plans would become the predominant types of defined benefit plans.
-- Both defined contribution plans and IRA's would increase to represent 37% and 38% respectively of total retirement assets, suggesting a dramatic shift over the five-year period.
The experts also forecast spectacular growth for institutional funds, especially those designed specifically for retirement plans. According to the study, institutional funds are expected to represent 21% of the 401(k) plan assets, slightly surpassing retail mutual funds that would represent 20% of 401(k) assets by 2010.
According to Henon, "This last finding has profound implications for many of the major players in the retirement business today. While many players in the 401(k) market grew out of retail mutual fund complexes and are steeped in retail mutual fund culture, there is a bright future for those companies that are already positioned as institutional players with a strict focus on the retirement plan business."
The Delphi study also highlighted a number of key trends within the retirement plan business itself. For example,
-- 74% of panelists said that self-reported participant data such as marital status and the value of outside accounts would become indicators for targeted, personalized communications to plan participants. In addition, most experts (69%) said that major plan providers will individualize Web site content and messaging based on age, gender and language.
-- A majority of experts (68%) agree that fee-based advisor compensation for retirement plan sales will not be the only option in five years.
-- Nearly 80% of panelists believe that at least 75% of all plan sponsors will have outsourced all aspects of their retirement plan administration by 2010.
"Traditionally, organizations that have chosen to completely outsource their benefits administration have done so to cut expenses and gain access to sophisticated technologies and improved service. While currently an option to a relative few, total benefit outsourcing is expected to increase significantly by 2010," explained Henon. "This will have major implications for providers' systems development efforts. Only those providers committed to making a sustained investment in their administration platform will be able to keep pace with the demands."
About the Study
Prescience: Expert Opinions on the Future of Retirement Plans, which was conducted in the third quarter of 2004, examined trends in mid- to large-size retirement plans - plans with $25 million to $1 billion in assets in 2004. Twenty-three retirement plan experts from 20 organizations across the nation answered 117 questions about both defined benefit and defined contribution plans. Survey participants represented trade associations, research organizations, consulting firms, and members of the media.
About Diversified
Diversified Investment Advisors is a national investment advisory firm specializing in retirement plans. The company's expertise covers the entire spectrum of defined benefit and defined contribution plans, including: 401(k); 403(b); 457; non-qualified deferred compensation; profit sharing; money purchase; cash balance and Taft-Hartley plans; and rollover and Roth IRA.
Diversified services over $58 billion in retirement plan assets, helping more than 1.2 million participants save and invest wisely for retirement. Headquartered in Purchase, NY, the company's regional offices are located in Arkansas, California, Georgia, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Michigan, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas and Wisconsin.
Visit our Web site at divinvest.com.
home.businesswire.com |
