Miss the DC West conference this year? We've got it covered

P&I reporters were on the ground covering the Defined Contribution West Conference, held Oct. 22-24. What follows is a selection of news and insights from various panels and keynote speakers.

Artificial intelligence will serve as a supplement, and not a replacement, to human interaction, according to Dennis Elliott, head of product and platforms for T. Rowe Price Retirement Plan Services.

"AI, or generative AI, isn't going to … replace the human engagement model, but it will make the advice delivery much more efficient," Elliott said during a panel Oct. 24 on AI in retirement planning.

The use cases of AI are plentiful and can also offer various benefits, such as increasing cybersecurity measures and targeting messaging based on what resonates with participants, according to the panelists.

However, those who use AI need to be more careful about its pitfalls, such as its potential biases, said Oliver Hannay, director and senior retirement product manager at Bank of America Merrill Lynch.

For example, "it's all well and good to tell someone (to) increase (their) contribution rate, but if that person has two outstanding loans, and just took their contribution rate down to zero, it's not really appropriate to message" them about that, he said.

Most employers will "take a deep breath" before acting on an IRS provision of the SECURE 2.0 Act of 2022 that requires catch-up contributions for defined contribution participants to be Roth contributions if they earn $145,000 or more per year, said J. Mark Iwry, a former Treasury Department official.

The breathing room is due to a two-year moratorium announced in August. Otherwise, the controversial Roth provision would have taken effect Jan. 1, 2024. Most employers will wait for additional guidance, Iwry said Oct. 23.

He was joined by P&I President and Publisher Nikki Pirrello and Ali Khawar, principal deputy assistant secretary at the Labor Department's Employee Benefits Security Administration on a panel titled "Navigating SECURE 2.0's Tax Code Provisions and Implications."

But "people shouldn't wait to the last second to implement this,'' Iwry said. "This has sucked the oxygen out of the room. We all missed the fact that there wouldn't be enough time with a one-year delay to implement this Roth catch-up.''

The Roth catch-up provision wasn't done for retirement reasons. It was done to pay for the bill, Iwry said.

Currently, participants who are 50 and older can have their catch-up provisions subject to the traditional plan funded with pretax money or the Roth plan funded with after-tax money, depending on a sponsor's rules.

In a guidance document issued Aug. 25, the IRS said there would be a two-year transition period for sponsors to implement the law.

To save for retirement, people must reconcile their present self with their future self, said Hal Herschfield, professor of marketing, behavioral decision-making and psychology at the UCLA Anderson School of Management.

Behavioral research shows people act as if their present self is disconnected from the future self, an issue that affects saving for the future.

"In the brain, the future self looks

like a different person,” he said during the keynote address — “Building a Better Tomorrow” — on Oct. 24.

The key for retirement saving is to make life easier for the present self, for example, breaking a savings strategy down into manageable, daily amounts vs. a larger monthly goal, a strategy that applies not only to retirement savings but also to other life issues such as exercising in the present to lose weight in the future, he said.

The goal for achieving more successful retirement savings is to create behavioral changes that make a stronger relationship between the present self and future self — so the future self seems less remote.

Herschfield said there are three strategies to improve retirement saving using the present self-future self concepts, including making life for the present self easier. The second is to stay on track, making sure to maintain commitments for improvement. The third is to make the future self closer to the present self.The key to the third strategy is to make the future self “more vivid and more emotional.” Herschfield said some research shows that people viewing age-progression photos are more motivated to act now so that their future self is taken care of.

That’s the advice when it comes to implementing retirement plan initiatives that plan sponsors feel are right for participants, said Diana K. Winalski, deputy chief investment officer at International Paper and one of the 2023 Excellence & Innovation Awards winners.

During a panel hosted by Lisa Massena, chief operating officer of the Defined Contribution Institutional Investment Association, the five winners highlighted a variety of ways in which they’re keeping plan participants engaged and improving opportunities for saving.

In 2023, International Paper added a stand-alone private real estate fund to its 401(k) plans, which “offers tremendous diversification benefits to the standard stock and bond portfolio,” Winalski said.

Cody Davis, director of benefits for CoStar Group, talked about the company’s program to match student loan payments in 401(k) plans, dollar for dollar, up to 4% of pay. For other plans looking to implement something similar, “you will need a good partner,” Davis said, as CoStar Group works with SoFi and T. Rowe Price.Under one of the provisions in SECURE 2.0, employers can make matching contributions to a worker’s 401(k) plan, 403(b) plan or SIMPLE IRA based on qualified student loan payments beginning in 2024.

Gen Z, millennials and Gen X are more pessimistic than baby boomers when asked if they expect to receive any of their earned Social Security benefits, according to the Nationwide Retirement Institute’s 2023 Social Security Survey, cited in an Oct. 23 panel on “Exploring Generational Perspectives — Do Gen Z and Millennials Believe in Future Social Security Benefits?”

That’s why it’s important to talk with younger generations about what they can control, said Thomas Brandt, chief risk officer and director of planning and risk for the Federal Retirement Thrift Investment Board.

“I think if people are really feeling like they have no control over … the future of Social Security, the thing they can control is their own investments,” Brandt said. “And so, I think that is an opportunity for us, as plan sponsors, to say, ‘You have the ability through your defined contribution plan to actually introduce some greater level of certainty around your retirement outcomes.’ ” Carly Morales, principal administrative analyst at San Diego County Treasurer-Tax Collector’s Office, said she often works with participants directly to show them how various contribution rates will affect their paycheck. She also “highlights the features in the plan that can help them,” such as provisions allowing participants to take out a loan or save for emergencies.

Tailoring investment design and retirement plan design to participant preferences could increase engagement, according to Liana Magner, executive vice president and head of retirement and institutional in the U.S. for Natixis Investment Managers.

The Labor Department issued a rule in November 2022 that “introduced … this concept of participant preferences,” Magner said during the Oct. 23 panel “Unlocking Retirement Plan Participation — Trending Approaches on Employee Engagement.”

Specifically, the rule “adds a new provision clarifying that fiduciaries do not violate their duty of loyalty solely because they take participants’ nonfinancial preferences into account when constructing a menu of prudent investment options for participant-directed individual account plans,” according to a DOL fact sheet. The rule also explicitly permits retirement plan fiduciaries to consider climate change and other environmental, social and governance factors when selecting investments and exercising shareholder rightsA 2023 Natixis survey of defined contribution plan participants found that 92% of millennials, 81% of Gen Xers, and 65% of boomers would like more sustainable investment options, Magner said — therefore, under the new DOL rule, plan sponsors could offer more ESG investment options to boost participation.

Retirement plan sponsors can’t just drop participants into a managed account, said Sue Walton, senior vice president, retirement strategist, at Capital Group.

Plan sponsors must make sure employee are participating and are engaged in their retirement planning for managed accounts to be successful, she said during an Oct. 23 panel discussion, “The March Toward Customization for Enhanced Retirement Outcomes.”

Walton described a five-product spectrum of increased customization. The simplest is a target-date fund. Next are multiple glidepath TDFs. Then there are personalized TDFs, followed by dynamic qualified investment alternatives. And, finally, managed accounts, the most detailed effort at customization, she said.The question, she said, is always how to balance customization against cost. In other words: “Is the juice worth the squeeze?’’ she asked.

Alts can play a role in plan lineups, but there are cost considerations, said Jessica Sclafani of T. Rowe Price, speaking on a panel titled “The March Toward Customization for Enhanced Retirement Outcomes.’’

“If you want to include an alternative strategy, in a way that would actually influence returns, you would need to add an allocation that would also strongly influence your fees,” said Sclafani, senior defined contribution strategist.

“And what we have found in the plan sponsor community is that the fee increase from including alts is just not tenable.’’That led T. Rowe to add two strategies to its target-date fund solutions. One is an hedged equity strategy as well as a dynamic credit strategy. Those strategies kick in when retirement plan participants are about 10 years out from retiring, a time when they need to maintain that growth or return-seeking posture, but also need to protect themselves against volatility, she said.

"One of the mistakes I think we make is we try to apply accumulation principles to decumulation,” said Nick Nefouse, managing director and global head of retirement solutions in BlackRock’s multiasset strategies and solutions team.

Retirement is “even more behavioral” than accumulation, as it depends on how much individuals spend on their healthcare, housing and more, Nefouse said at a panel called, “Flipping the Script on Managing Decumulation — Ensuring a Sustainable Income Stream.”

Another issue is that insurance is not treated “like an asset class,” he said, and people don’t understand what works well. In his view, that’s “institutional quality products (that are) professionally managed.”“We all have an annuity and that’s Social Security,” Nefouse added, though most people don’t consider the program to be an annuity.

SECURE 2.0 will provide a halo effect over financial wellness when it comes to helping lower- to middle-income workers, said Holly Verdeyen of consulting and advisory firm Mercer.

“The first thing I will say is that SECURE 1.0 and 2.0 collectively really were a triumph for financial wellness,” said Verdeyen, partner and U.S. defined contribution and financial wellness leader at Mercer.

“And even though plan sponsors may not make use of all the in-plan provisions ... it really is going to have a big halo effect on financial wellness in general.’’

Notably, starting in 2024, SECURE 2.0 allows employers to offer participants an emergency savings account as part of their retirement plan.

Participants can be automatically enrolled at up to 3% of their pay — with the ability to opt out — and after-tax contributions are capped at $2,500.

In evaluating SECURE 2.0 provisions, sponsors should take a step back to evaluate their wellness provisions, collectively, holistically and also their total rewards package, she said.