By Mark Olsen, Managing Director at PlanPILOT
The scope and structure of retirement plans evolved significantly in 2024 and this trend will continue unabated into 2025. One aspect receiving considerable attention is the concept that retirement planning is a shared responsibility of the employee and the employer and plan sponsors are increasingly motivated to implement new innovations to retain top talent and assist their employees in planning for their future.
This responsibility on the part of plan sponsors has also given rise to the need for companies to utilize the services of advisor firms, such as PlanPILOT, to provide customized strategies for retirement plan design, implementation, and governance. Here are the leading retirement plan trends we see emerging over the course of this year.
More Emphasis on Participant “Financial Wellness” and Education
The most recent Federal Reserve study on retirement readiness stated that nearly a third of American non-retired workers do not have any retirement savings and of those that do, the average balance is less than $100,000. Further, 35% of those surveyed felt they were worse off than the previous year and another third felt they were off track.
Plan sponsors have responded with greater demand for educational and financial wellness tools for participants and this trend is expected to continue into 2025. Kevin Crain, Executive Director of the Institutional Retirement Income Council, believes that “a critical priority in 2025” will be to provide education and utilization studies that will help plan sponsors, consultants, and advisors implement such programs. In addition, these enhancements are expected to provide participants with user-friendly and AI-interactive planning tools that can help enhance financial wellness and retirement readiness for employee-participants.
Greater Focus on Retirement Income Solutions
With the continued decrease in traditional defined-benefit pension programs available to participants that could provide a predictable and reliable source of retirement income, plan sponsors have been looking to evaluate and implement retirement-income solutions within their defined-contribution programs.
This trend could accelerate as plan sponsors continue to consider product offerings such as hybrid target-date funds, customized annuities, lifetime income products, or systematic withdrawal options for participants. Tools that integrate Social Security income benefit planning and Medicare enrollment guidance are also expected to increase in scope, helping participants optimize their Social Security and Medicare elections. The demand for these types of options will continue to gain momentum in the coming year as demand by plan participants and their employers for personalized planning tools increases.
Proper implementation will likely require support from consultants and advisors to provide evaluation and selection processes, as well as further studies and surveys to help educate plan sponsors about the benefits of such programs to their employees.
Look for More Enrollment and Contribution-Increase Automation
The success of auto-enrollment features in defined-contribution plans has led to increased participation among employees as well as higher overall plan savings. Expect plan sponsors to build upon these achievements in 2025 with additions of default auto-escalation capabilities within retirement plans, where a participant’s contributions may automatically increase year-over-year.
Qualified default investment alternative (QDIA) choices will continue to evolve in the coming year. While not expected to broaden into retirement income options just yet, so-called “target-date” funds as the QDIA in retirement plans remain a popular solution for participants who are reluctant to make their own allocation choices and should continue to evolve in their composition.
Expanded “Catch-Up” Contribution Limits and Roth Focus
The SECURE 2.0 Act in 2022 provided significant changes to the retirement world, including increased contribution limits for those nearing retirement age. Beginning in 2025, employees aged 60-63 can make “catch-up” contributions that are 150% larger than normal catch-up provisions. These are in addition to normal contribution limits for qualified defined-contribution retirement plans.
In addition, all catch-up contributions for those over 50 are required to be designated to Roth after-tax accounts within a participants’ overall account, starting in 2026. Plan sponsors should update their plans to comply with these provisions as well as update their educational programs to help employees understand and take full advantage of these valuable benefit options.
Utilizing Professional Assistance
PlanPILOT is uniquely positioned to help employers customize and design benefit plans that meet your unique needs and objectives. If you’re ready to upgrade to a new standard for your benefit planning, reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.