ERISA at 50

The evolution of retirement advisory

There has been a multitude of milestone changes to the retirement landscape over the last 50 years — from ERISA, celebrating its 50th birthday this year, to the Pension Protection Act of 2006 (PPA), now 18 years old, and more recent legislative achievements such as the SECURE Acts 1.0 and 2.0. Alongside these shifts, we’ve seen a host of significant technological and product advancements.

To gain insights into these changes and what the future may hold, we spoke to three advisors: Apryl Pope, co-founder of Retirement Plan Partners, LLP, Eric Hansen, principal at Hartmann-Astor Investment Consulting, and Michael Morris, managing director at Pensionmark.

“Even though we are living in the world of SECURE Acts 1.0 and 2.0, nothing has had as much of an effect as ERISA. It laid the whole groundwork that led to the rise of defined contribution (DC) plans,” says Apryl. “ERISA brought fiduciary standards, protection for participants by ensuring plan sponsors act in their participants’ best interests, and the establishment of the Pension Benefit Guaranty Corporation. I love SECURE Acts 1.0 and 2.0, but ERISA definitely takes the cake.” 

Eric views the impact of legislation through a slightly different lens: “I think the PPA was one of the most impactful changes because it introduced and encouraged the use of automatic enrollment and auto-escalation features. These changes were aimed at increasing participation rates and savings by making it easier for employees to join. The PPA also simplified investment choices through target date funds and allowed for lifetime income options within plans, which are just peeking their head over the horizon.”

For Mike the pronounced shift from defined benefit (DB) to DC has been the most profound, saying, “that shift has moved responsibility from the employers to participants. And that has had benefits, like portability, and downsides, such as for those individuals who aren’t as well versed in financial management it can lead to inefficiencies, and not having enough saved for retirement.”

Despite the legislative side of things being relatively settled, change remains constant. According to Apryl, “Best practices are always evolving. Working with a company that has hundreds of employees that has to use video and technology to communicate to the majority of employees will always be a challenge, and we have to remain focused on providing the best service to the greatest number of people.”

The double-edged sword of retirement plan compliance

One element of advisory practice that does not seem to be going away is the constant threat of litigation. While it can be a headache, advisors see litigation as a double-edged sword. For Eric, the possibility of legal action can be a positive force, as the stick of legal action incentivizes activity that can improve outcomes for participants. “Litigation can make companies aware that they are not acting in the best interest of participants. Lawsuits can get them to stand up and notice. Even a quarter basis point in cost savings over time can be extremely impactful to a participant’s financial outcome, so if a lawsuit shifts that cost basis, then that is a positive outcome. However, the current focus on plan forfeitures has less merit, in my opinion, and I believe it will self-correct as firms fail to win those.”

Apryl, however, sees litigation as a challenge to innovation. “Lawsuits increase costs for plan sponsors, and they are rightfully nervous about that. If they are thinking about trying something new, they move more slowly than they otherwise might have simply due to that risk of litigation. But lawsuits aren’t going away.”

The other side of this, as Mike sees it, is that it has changed the relationship between participant and plan sponsor: “It can create an adversarial atmosphere between employers and employees. Everyone is happy when the market is up, but I remember around 2000 when the market fell there were billboards out saying ‘Have you lost money in your 401k plan?’ and opportunistic lawyers will take advantage of that.”

Another emerging trend involves individual U.S. states taking a more active approach to setting retirement policy. While ERISA contains a preeminence clause, states are taking steps to build retirement plan mandates and protections for workers. This is a complex issue, but anything that adds complexity to the retirement landscape is going to make it more difficult for companies to set their benefits policies. As Apryl notes, “It makes me a little nervous because employers could be discouraged by the different regulatory regimes in the states they operate in. It quickly becomes too much to manage. My fear is they’ll simply disengage instead.” Eric agrees, adding, “A shift in control to the states would add to an already complex regulatory environment for companies doing business in multiple states. It would be a nightmare. ERISA brought uniformity to the retirement landscape in the U.S., and we should protect that.”

The future of retirement planning and technology

Predicting the future of retirement planning and advisory best practices is always challenging, but certain trends seems likely to continue. Within the retirement industry, the growing trend of in-plan guaranteed lifetime income products looks set to persist. Eric observes, “It’s really solving the issue of providing paychecks in retirement. The challenge isn’t with the products themselves — they’ve existed for years in the form of annuities. But with these new institutional solutions for the DC space, we, as advisors, now have the tools to assist participants and do the right thing for them.”

On a broader scale, macro trends in technology, such as artificial intelligence (AI) and robo-advisory services, are also worth watching. Apryl sees the potential for these technologies to make the job of advisory easier: “Everything is online now. We can set up a very basic plan in 20 minutes and everything is supported by AI and AI-driven financial wellness.”

The growth in lifetime income being built into plans is something that Mike sees continuing, as it is of importance for both plan sponsors and participants. “Even if a participant has a lot of money saved they often don’t know what to do with it. The industry needs to move forward with plan design innovation, especially with guaranteed income products.”

Finding your niche

Mike sees that need for specialization among advisors as well, concluding, “advisors are a steward for their plan sponsors, and they need advisors who are very knowledgeable. Advisors have to understand what it takes for a plan sponsor to be where they need to be, and they rely on you. If you’re just dabbling, you’re not helping anyone.”

With that eye on the future, it can be difficult for advisors to know how to develop their career. “My advice to new advisors would be to specialize,” says Eric. “Focus on a specific market, such as 401(k) or 403(b). Also, continue to learn and seek out continuing education opportunities. Once you start to sit back and assume that you know everything, that’s when you lose your edge.”

Relentless learning is something Apryl calls out as well, specifically, the need to be open and embrace new technology. She also underscores the importance of building a unique practice that allows you to differentiate yourself as an advisor: “Find a niche market, don’t just be an advisor for everything. Know who you want to target so you can truly serve that market. You have to feel that passion.”

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