While the U.S. retirement plan industry continues to see significant growth in assets across all plan types and more workers are gaining access to workplace-sponsored plans, the retirement plan system also continues to face challenges, according to panelists at the PLANSPONSOR National Conference in Chicago.

Bridget Bearden, a research and development strategist at the Employee Benefit Research Institute, said at Wednesday’s panel, “The State of the Retirement Plan Industry,” that many of the challenges have nothing to do with the retirement system itself, but stem instead from external factors like the changing economy, the high cost of health care and threats to Social Security.

The assets involved continue to grow: the Investment Company Institute estimated that at the end of 2024, retirement assets across all account types totaled $44 trillion. Bearden said defined contribution plans alone make up $12 trillion in assets, with 401(k) plans accounting for about $9 trillion of that.

In addition to the growth in assets, Bearden said 36% of American households are investing in retirement accounts, and an average of two out of every three American workers in the private sector have access to a defined contribution plan. More than half of the workers with access are participating in the plan.

Looking Beyond Asset Growth

But at the same time, Bearden explained that employees continue to deal with major stressors like day-to-day expenses, as the cost of living and inflation continue to rise.

“It’s clear that wages haven’t kept up with inflation for many low- to moderate-income workers, and that’s having a detrimental impact on their willingness to save,” Bearden said. “It’s also leading to increased debt, reliance on credit cards, and it’s increasing financial stress overall.”

Andy Banducci, senior vice president of retirement and compensation policy at the ERISA Industry Committee, said the complexity of benefits and products is likely to continue.

“There’s benefits to complexity [because] it allows people to create new products when they have innovative ideas … but there [are] communication challenges with participants, [and] there [are] communication challenges with our regulators,” Banducci said.

Innovation also brings litigation risk, which many plan sponsors want to avoid, Banducci argued.

“As it becomes more complicated to provide [certain] benefits, and as it becomes more costly, there is more risk,” he said. “I think that’s a major challenge for the benefits system.”

Seeking Efficiencies

Pam Hess, the executive director of research at the Defined Contribution Institutional Investment Association, said plan sponsors are dealing with multiple, competing needs from employees, while they are also dealing with constrained budgets and small staffs.

Hess agreed with Banducci that litigation can deter innovation, but said plan sponsors are also struggling to keep up with mandatory regulatory provisions.

Bearden added that participants are also trying to balance their short-term liquidity needs with saving for the long term.

“I think it’s a challenge for plan sponsors to walk that fine line of messaging,” Bearden said. “Over the long term, with the continued rollout of decision tools and the use of [artificial intelligence] in benefits decisionmaking, it could possibly divert some of the assets that were traditionally going through auto[matic] enrollment into the 401(k) plan into other savings vehicles, whether it’s emergency savings or [health savings accounts] or a student loan match.”

Looking ahead, Hess said she expects recordkeeper firms will continue to consolidate, as fees remain compressed. At the same time, she said there will likely continue to be a proliferation of providers that will partner with the recordkeepers to offer more personalized services to employees.

“When we think about the different providers out there, [there’s] going to be more ‘coop-etition’—more working together with other organizations—because the recordkeeper can’t build everything efficiently or effectively,” Hess said.

Banducci argued that low recordkeeping fees, driven down by competition, are a positive. The downside, he said, could be less product innovation. While most plan sponsors may not be interested in merely achieving the lowest fees possible, Banducci said litigation risk is likely driving this quest for low fees.

Holistic Approach

Beyond fee compression, Bearden said employees are also now expecting to have a more holistic view of their financial situation, including their retirement accounts. She said recordkeepers may eventually integrate a participant’s HSA savings, emergency savings and other data onto one platform to provide that more holistic snapshot.

“It’s this integration across all of the various facets of one’s financial life that I believe is not going to be just a differentiator and justify fees, but it’s going to be table stakes in the future,” Bearden said. “We experience it today when we link our Venmo to our bank account, which is linked to our retirement savings account. … So it’s all at our fingertips, and being able to provide that to the employees and really delight them in that experience is going to be a core component of the recordkeepers that thrive in the future.”