Retirement Fund Act Changes Disrupt Life Insurance Industry

Recent changes to the Retirement Fund Act are causing significant disruptions in the life insurance industry. The Labor Department has issued a proposed information collection request to help workers access lost retirement savings through an online search tool. This comes at a time when younger generations are increasingly taking on side hustles and second jobs, with more than half of adults expecting inflation to increase this year.

The new bill aims to restrict the use of environmental, social and governance (ESG) factors in retirement plan investment decisions, specifying that fiduciaries may only consider 'risk and return' factors. This has sparked concern among the pension sector, as schemes are still far from ready for pension dashboards. The government's proposals for a public consolidator form part of its consultation on options for DB schemes, which also looked at routes for smaller schemes to consolidate. The consultation closed on April 19th.

A recent survey found that 70% of workers would be willing to switch jobs for better benefits, with younger workers expressing the greatest willingness. One-size-fits-all benefits packages are seen as ineffective, as benefits priorities vary across demographic groups. Companies often lack insight into what their workers truly want. Younger workers prioritize education and training benefits, while older workers desire more comprehensive retirement benefits and parental leave. Ethnic and racial minority groups ranked education benefits as a top priority, 70% more likely than white workers. Lack of communication about benefits results in lack of utilization, with two-thirds of workers saying there is room for improvement.

Retirement industry experts Bonnie Treichel and Matthew Eickman addressed common objections to in-plan lifetime income options backed by annuities. They highlight four key ingredients for retirement confidence: greater savings, access to lifetime savings vehicles, guarantees or protections, and education. Many concerns, such as risk, lack of expertise, high fees, complexity, proprietary offerings, portability, and lack of participant demand, can be addressed with industry advancements and the SECURE Act's safe harbor for lifetime income solutions. Fiduciaries should consider the needs of the plan and participants, going through a prudent process to make informed decisions about offering in-plan retirement income options.

Baby Boomers in the U.S. face challenges as they approach retirement. Research by the Alliance for Lifetime Income found that more than two-thirds of Boomers turning 65 between 2024 and 2030 will not be financially prepared to maintain their pre-retirement lifestyles. This is due to a lack of adequate retirement savings, with over 50% of Boomers in the peak age range relying primarily on Social Security for income. Stark disparities in retirement preparedness exist based on factors like race, gender, and education level. Annuities can provide a 'three-legged stool' of retirement income alongside Social Security and personal savings, but uptake has been slow due to factors like underestimating life expectancy and perceptions of high costs. Better education and advice is needed to help Americans understand how annuities can fit into their overall retirement planning.

Why this matters: The changes to the Retirement Fund Act and the challenges facing Baby Boomers highlight the need for improved retirement planning and benefits. As workers increasingly prioritize tailored benefits packages, employers must adapt to meet the diverse needs of their workforce to attract and retain talent.

The disruptions caused by the Retirement Fund Act changes underscore the importance of staying informed about regulatory developments and their potential impact on the life insurance industry. As Bonnie Treichel and Matthew Eickman noted, "The SECURE Act provides a safe harbor for lifetime income solutions, and with industry advancements, many of the concerns can be addressed." Fiduciaries must carefully consider the needs of plans and participants to make prudent decisions about offering in-plan retirement income options. With more than two-thirds of Baby Boomers unprepared for retirement, the urgency for better education, advice, and retirement planning solutions has never been greater.

Key Takeaways

• Retirement Fund Act changes disrupt life insurance industry, spur online search tool
• New bill restricts use of ESG factors in retirement plans, concerns pension sector
• 70% of workers willing to switch jobs for better benefits, priorities vary by demographics
• Experts address concerns over in-plan lifetime income options backed by annuities
• Over 2/3 of Baby Boomers unprepared for retirement, need better education on annuities