The American retirement industry as we know it today is only about 50 years old—in other words, not quite at retirement age itself. It began with the Employment Retirement Income Security Act of 1974 (ERISA)—which established minimum standards for pension plans in private industry—and has evolved in the half-century since into a $400 billion dollar industry, one relied on by an estimated 79 percent of employers.
As one would expect, the industry has undergone countless transformations over the past few decades, with mounting regulations and an increasingly elaborate set of industry best practices. But in recent years, the pace has started picking up considerably. At conferences, industry events, and informal get-togethers with colleagues, one hears the same thing over and over: the retirement industry—usually somewhat set in its ways—is changing. And fast.
Retirement Plan Service Providers might be a relatively small community within the broader accountancy world, but their impact cannot be overstated—after all, few things bear more directly on our lifetime happiness and contentment than our retirement savings. With this in mind, it's worth taking a closer look at some of the factors conspiring to shake up the industry—and examining the future that some of its more advanced players are charting for it.
An industry in flux
Let's start with the regulations.
If you work in the retirement industry, you always have at least one eye on the regulations. And the most notable recent development on this front, of course, has been the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0, signed by Congress last December, about three years after the first part of the bill was signed into law.
SECURE 2.0 instituted some fairly significant changes to the retirement savings process, including adjustments to the age when required minimum distributions begin, as well as better catch-up contributions aimed at assisting older workers who have failed to meet their retirement savings targets. While the impact of this law has yet to be fully quantified, we can expect to see, at a minimum, a notable increase in the number of retirement plans managed by Retirement Plan Service Providers.
As it happens, this surge in business for Retirement Plan Service Providers is coming at a time when the fate of many active ones is in flux. Some Retirement Plan Service Provider owners are in the process of retirement themselves—having started at or around the time ERISA was signed into law, they're ready to hang up their hats and make use of their own retirement savings. Some of these owners are passing their businesses on to their children or to longtime mentees—but others are closing their doors outright.
Meanwhile, the retirement industry has been far from immune to the hiring issues plaguing countless industries right now. Retirement Plan Service Providers are struggling to recruit employees for the kinds of repeatable but time-intensive lower-end tasks that can dominate a workday without proper staff.
And in the background of all this, we're also looking at a potential slowdown in acquisitions. Consolidation has lent a lot of energy to the retirement industry in the last decade or so, with larger ones gobbling up smaller ones in big numbers, but with turbulent economic weather on the horizon (and the memory of the Silicon Valley Bank collapse continuing to spook investors), we can expect to see a bit more caution on the part of private equity and a noticeably altered landscape for the retirement industry.
What's next for the retirement industry?
While we touched on some of the structural challenges the retirement industry is currently facing, the question moving forward is: what does a fully modernized Retirement Plan Service Provider business look like? What will retirement planning professionals need to thrive in the industry as we move through the decade?
The short answer is: agility.
Put it this way: speed, today, is a baseline expectation on the part of consumers. They expect the people they hire—not just for retirement planning but for everything—to be up on the latest industry trends, to move quickly, and to be doing everything in their power to adapt to them. To survive moving forward, Retirement Plan Service Providers need to be nimble—ultra-responsive to shifts in the markets and in regulations.
One way retirement planners can meet the needs of their clients is through managed services. In the last few years—and especially since hiring became an issue across the economy— Retirement Plan Service Providers have begun to outsource some of the lower-end repeatable tasks: document creation, restatements, 5500s, compliance testing, among many more. Certain software or other companies can take on these tasks and free up Retirement Plan Service Providers to focus on the work that actually matters. For instance, ftwilliam.com’s software is intuitive and provides customers with seamless and efficient processes to increase accuracy and streamline communication with clients, making tasks easier than ever.
Technology can help here, too. Automated tools or general industry-targeted software can assist in major ways with repeatable tasks and with the ever-shifting demands of regulatory compliance. There is a ton of innovation happening in this space right now, and many Retirement Plan Service Providers are ignoring it; they have their way of doing things and they're sticking to it. This logic is fine, but as everything—from the market to regulations to consumer preferences—continues to accelerate, some of these firms might find themselves at a distinct disadvantage.
Right now, we're in the early days of what many are calling the Great Retirement, with millions upon millions of Baby Boomers leaving the workforce to enjoy their remaining decades. Put otherwise: the retirement industry has its work cut out for it. But by staying agile, and taking advantage of the latest technology, we can expect a healthy next few decades for the retirement industry as a whole.
