Since the (long-awaited) SECURE Act 2.0, it seems 2023 may be the year that businesses and individuals get the help with retirement plans they need
by: Jack Barry, Head of Product Development, John Hancock Retirement
Last year was one of headwinds for the retirement industry, with volatility, inflation, and global crises affecting businesses that might have offered a plan and individuals who were trying to save in a plan.
The past year saw global crises around the world. Persistent inflation and interest rate hikes continued to poke at the finances of both businesses and individuals, making it hard for the former to offer a retirement plan and the latter to save in one. A challenging labor market added new complexities to talent attraction and retention for businesses large and small. And the erratic stock market continued to unnerve both businesses and retirement plan investors with foundational savings in the market.
With the passage of the SECURE Act 2.0, 2023 may be the year that both businesses and individuals get some help with retirement plans. With the upcoming provisions, plan sponsors could consider trying to find ways to continue to offer (or start offering) this important talent attraction and retention tool while minimizing the impact to their bottom line in a tough economic time.
And, having a holistic approach to their finances can help participants see their retirement savings in context. Working to improve financial literacy and reinforce the pillars of financial well-being (such as having a budget, emergency savings, and retirement savings) is always helpful, but can be particularly essential in times like these. And in response to the economic environment, education on what it all means and how to handle market volatility in their retirements savings—which is to stay the course—is critical.
Hopeful 2023 Will Bring An Expansion Of Retirement Plans And Americans Participating In Them, Though Getting Action From Small Businesses May Take Some Effort
The biggest opportunity for the retirement industry in 2023 also is its biggest challenge – expanding coverage. The fight for top talent may help the industry move the dial on retirement plan adoption.
According to the Bureau of Labor Statistics, more than 47 million workers left their jobs in 2021. The fight for talent is real and a retirement plan can be seen as a significant piece of someone’s overall compensation and benefits package. In our most recent study of stress, finances, and well-being, 93% of respondents said a retirement plan is a critical benefit, and 78% said they would be unlikely to work for a company that doesn’t offer one. Small businesses in the fight for talent may face a disadvantage if they don’t offer a competitive benefit suite. We anticipate that with SECURE Act 2.0, we’ll see strong growth in small business retirement plans.
At the plan level, because nearly half Americans work for small companies and about half of small businesses do not offer a plan, there’s a massive opportunity to expand coverage in that market. Having access to workplace savings is still the most efficient way for Americans to save for retirement. Helping small business start their plans is a great opportunity. But overcoming business owners’ perception that implementing a plan is too much work and oversight can be a challenge.
With the provisions in SECURE Act 2.0, we’re particularly pleased to see the federal government taking notice and taking action, with tax credit incentives for small employers to start plans, more coverage for long-term part-time employees, and the expansion of employer match to workers who are paying down student debt.
Providers hold a key if they’re able to find a way to make it easy for the small business owner to offer a plan without having to expend significant effort or money. MEPs and PEPs along with programs that can package a recordkeeper, investment fiduciary, plan administration fiduciary to make it easier for a small business to offer a tailored plan, can help.
Additionally, we’re pleased to see the prominence of auto features in the SECURE Act 2.0. We continue to see, year after year, how effective they can be at helping people achieve retirement readiness. Auto-enrollment helps people start saving earlier, which helps result in better retirement readiness long term. Employers that auto enroll participants at 5% or greater, coupled with an auto-increase, have 13% more participants achieving retirement readiness than those without auto features.
Reducing The Income Gap
There isn’t a retirement savings gap as much as an income gap. This gap is the difference between those who can save the recommended 10% of their paycheck for retirement, and those who aren’t able to save that much.
We believe that some people may not be saving for retirement or using their plans because they have competing day-to-day financial concerns that they want to address first before they can think about investing in their retirement.
We feel it’s beneficial to help participants take a closer look to see if they’d be able to start saving, even just a small amount now, to get into a good habit. And then, over time, if they can increase the savings rate by small steps, they’re on a better trajectory to achieving retirement readiness. Sometimes it’s important to realize that it is a long process – and starting can be the most important thing.
We’ve found that providing personalized guidance at the time of enrollment can help people understand the impact of contributing at different rates and help them to choose a saving rate that may be suitable and able to be maintained in their current unique circumstances – and which they can increase over time as their circumstances change. Eighty-five percent of our participants who received such guidance did not opt out of the plan, a 37% higher rate than those who did not receive the personalized messaging.
Additionally, including a suite of financial wellness tools as part of the retirement plan participant experience can help people manage their financial priorities. Each individual faces their own financial stressors, and a plan’s financial tools and approach should be personalized and relevant. Effective programs help address specific financial obstacles that may prevent saving for retirement, as well as help optimize saving to and through retirement. With a plan’s financial wellness tools, participants can aggregate savings and investments accounts for a single view of finances, set goals and follow a budget, save for emergencies, and receive guidance on saving for college. Combined, all the tools and resources can help people learn to live within their income and still save for retirement.
Starting Is The Key
Traditionally, advice for retirement savings starts with contributing the maximum, and if someone can’t do that, it’s suggested they contribute enough to get the company match – and I’d agree that’s the best advice. However, it may not always be practical.
This year with expectations for a continuation of a volatile market and difficult economic conditions, saying that may leave a segment of the population feeling excluded and concluding that since they can’t contribute at those levels, they won’t do anything.
But retirement savings can be for everyone, and they can be a part of the plan. If they’re not in the plan yet, there may be a way to do it. It’s not all or nothing. Just getting involved can be beneficial. And they can make small steps over time.
Learning To Save For The Short- And Long-Term Simultaneously
It’s important to start helping people realize they can have two or more savings goals simultaneously – a short-term goal, such as building an emergency savings fund with small contributions each pay period, and then a larger long-term retirement goal that’s 30 years in the future and slowly contribute to that. It’s helped people get to the realization that if they can’t do it all at once, they still can break their goals down into small components. Putting the goals side by side and helping them track their progress, helps them stay on track.
What We Anticipate For 2023
We’ll still be working on helping participants understand volatility and how to save through volatile times, looking at what market recoveries look like, and how they can resist getting distracted by short-term interruptions and instead stay focused on long term goals.
We still think there will be a lot of job changing. And with that, we expect businesses to continue searching for top talent this year, and that top talent will continue to move. A hot topic in the retirement industry is what the job changers do with their accumulated retirement assets. They’ll be able to join their new plan but shouldn’t lose sight of their old assets – and need to sort out whether they want the funds to follow them into the new plan or be put into an individual account. Job changers may take over the advisement of those assets themselves but it’s important they understand how making short -term decisions can affect long-term assets.
It should be a busy year on the regulatory front. With the passage of the SECURE Act in December 2022, this year will be a busy one for implementation. We think it could start a very positive increase in retirement plan adoption.
Top Three Thoughts For Retirement Savers In 2023
1.) Retirement is a long-term goal. Make sure you’re not making short-term decisions either on your retirement plan investments or taking assets from the plan for short-term needs.
2.) Set a goal, make sure you’re working towards it.
3.) Retirement providers offer suites of tools to help boost financial wellness – there is significant value in them. Take time to use them – they’re there to help. It does take effort, but if you use the tools that are available you may end up making better decisions which may lead to better outcomes.
John Hancock Retirement Plan Services LLC provides administrative and/or recordkeeping services to sponsors or administrators of retirement plans through an open-architecture platform. John Hancock Trust Company LLC provides trust and custodial services to such plans. Group annuity contracts and recordkeeping agreements are issued by John Hancock Life Insurance Company (U.S.A.), Boston, MA (not licensed in NY), and John Hancock Life Insurance Company of New York, Valhalla, NY. Product features and availability may differ by state. All entities do business under certain instances using the John Hancock brand name. Each entity makes available a platform of investment alternatives to sponsors or administrators of retirement plans without regard to the individualized needs of any plan. Unless otherwise specifically stated in writing, each entity does not, and is not undertaking to, provide impartial investment advice or give advice in a fiduciary capacity. Securities are offered through John Hancock Distributors LLC, member FINRA, SIPC.
 Interactive Chart: How Historic Has the Great Resignation Been? (shrm.org)
 In August 2021, John Hancock commissioned our eighth annual financial stress survey with the respected research firm Greenwald & Associates. An online survey of 1,162 John Hancock plan participants was conducted between 8/04/21 and 9/03/21 to learn more about individual stress levels, their causes and effects, and strategies for relief. John Hancock and Greenwald & Associates are not affiliated, and neither is responsible for the liabilities of the other.
 United States Small Business Economic Profile (sba.gov)
 Susan Neely, October 26, Support Small Businesses – ACLI IMPACT
 John Hancock State of the Participant 2022 Report. All data is from our open-architecture platform. 2021 data reflects John Hancock’s 1.5 million participants, 1,645 plans, and $112.9 billion in assets under management and administration (AUMA) as of 12/31/21. 2022 data is based on John Hancock’s 1.6 million participants, 1,716 plans, and $108.5 billion in AUMA as of 3/31/22. Earlier data is from our 2020 and 2021 state of the participant reports.
 Based on John Hancock Internal data based on all open architecture digital enrollments from March 27th, 2021 to May 28th, 2021.