Construction Industry Retirement Outlook for 2022
In 2022, the construction industry will need to take a creative and personalized approach with retirement.
Legislative initiatives in 2022 and a shift towards holistic financial wellness could permanently change how plan sponsors approach retirement benefits — and provide a major lift towards helping construction employees reach their retirement goals.
by John Wallen and Jim O'Shaughnessy
It’s been 15 years since the Pension Protection Act introduced the widescale use of automatic enrollment and other features critical to the long-term financial security of millions of Americans. Since then, the SECURE Act of 2019 gave retirement plans and retirement planning a further boost.
Still, more than half of older workers have saved less than $50,000 for retirement,[1] 40% have saved less than $10,000[2] and one quarter don’t have any retirement savings at all.[3]
Congress is expected to help remedy the situation in 2022 (if not earlier) through the Securing a Strong Retirement Act (SECURE Act 2.0), which could give retirement plans and employees a turbo boost to 401(k)s, not to mention opening the door for retirement plans to a whole new segment of workers.
Construction organizations, seeing the impact of financial stress on the workplace intensify during the pandemic, are also taking action: They’re making retirement planning part of an overall financial wellness strategy that aims to relieve stress and improve productivity.
Here are the trends and issues the industry is expected to face in 2022:
1. The SECURE Act 2.0 will be a game changer
Betting on Congress to pass legislation is unlikely to win many wagers, but it remains likely that the SECURE Act 2.0 will become law in 2022.
And when it does, the SECURE Act 2.0 will represent one of the biggest changes to employee savings and retirement plans in a decade.
Changes include expanding 401(k) auto enrollment, enhancing the saver’s credit, delaying required minimum distributions (RMDs) and providing tax credits for small employers and non-profit organizations that set up savings and retirement plans.[4]
Passage of the SECURE Act 2.0 not only has the potential to make existing plan participants better prepared for retirement but would also provide access to those employees who don’t have a retirement plan.
Employers should be aware of these changes and be prepared to act when they become the law of the land. Those changes can mean updating their current retirement plans or starting new ones altogether.
2. Retirement plans will no longer be optional
Construction employers are discovering that in a massive labor shortage, strong employee benefits — including a strong retirement plan — can mean the difference between attracting and retaining workers and not having employees at all.
What’s more, many employers will not have a choice: State-sponsored plans such as those in California and elsewhere will require employers to either offer their own small business retirement plan or participate in the state-sponsored one.
State-sponsored plans are often a basic plan with lower contribution limits and restrictions on owner participation, whereas a small business 401(k) provides higher contribution limits and additional features.
For many workers, a solid retirement plan is essential for their financial wellbeing and may be just as important as health benefits. And if employers are wondering about the impact on retention, only 44% of Americans think they have enough money to keep them funded throughout retirement,1 but more than half of the workforce say they’ll likely be job hunting within the next year.[5]
The context of employees looking for work in the shadow of COVID-19 — reassessing their work, family lives and goals — shows a higher salary might not be as effective as providing generous benefits, such as larger employer matching contributions on workplace savings plans.
3. Plan sponsors will embrace managed retirement accounts
Improvements to workplace retirement plans have largely been focused on features such as automatic enrollment and escalation, and defaults to target-date funds. But for many employees, that’s not enough to get them retirement ready.
Managed accounts may fit the bill.
How? With managed investment accounts, a professional money management service selects and packages funds for an individual’s retirement portfolio. In 2019, 37% retirement plans offered managed accounts and 63% of participants had access to them, but only 5% of participants used them.[6]
Remote working lends itself to this type of approach, as remote employees are often less interested in default investments such as target-date funds and more likely to opt for personalized advice.[7]
As a result, we expect more plan sponsors to offer options such as managed accounts. Organizations that commit to managed accounts will not only help their employee’s path to retirement but their financial wellbeing.
4. Cybersecurity issues won’t go away
Retirement plan sponsors and participants are hardly exempt from the dangers of cybercrime.
The 2020 CARES Act allowed early, penalty-free distributions from 401(k) plans for participants affected by COVID-19. The early distribution option and heightened risks of remote work have made plan participants a major target for cyber theft.
And it’s not just employees that need to be worried. Security breaches at plan custodians and administrators have led to participants’ accounts being hacked and emptied, resulting in litigation against plan sponsors.[8]
The U.S. Department of Labor has issued best practices that fiduciaries should follow to ensure the highest level of cybersecurity risk mitigation for the $9.3 trillion Americans have saved for retirement.[9]
These DOL best practices include the following:
· Maintain a formal, well-documented cybersecurity program that includes periodic cybersecurity training.
· Implement annual third-party audits of security controls.
· Ensure that any assets or data stored in a cloud or managed by a third-party service provider are subject to appropriate security.
· Have an effective business resiliency program addressing business continuity, disaster recovery and incident response.
· Encrypt sensitive data.
5. Financial wellness and retirement plans unite
Roughly 65% of Americans are considered lacking in financially literacy,[10],[11] while a similar percentage of adults say that money worries are a significant stress in their lives.[12]
As a result, financial stress contributes to loss of productivity. Financial wellness programs, however, can make a major impact in helping reduce financial stress.[13]
So instead of just addressing the need to save for retirement, employers that want to improve engagement will make retirement plan educational services and corresponding financial wellness programs part of a holistic financial wellness effort.
For instance, a financial wellness initiative that combines education with coaching can help employees with managing debt, which will help them start saving for retirement.
This kind of program stresses the importance of emergency savings, keeping a budget and avoiding and reducing debt. Key are initiatives that go beyond education but have tools that can demonstrably improve employees’ finances.
2022 Growth and Beyond
In 2022, retirement benefits will experience growth and adaptation, through external forces like SECURE Act 2.0 and internal decisions that will change how plan sponsors present plans to employees. Employers realize the impact that financial security has on productivity and retention. And plan sponsors will face cybersecurity issues with renewed urgency.
All of the changes will require preparation — and well-prepared plan sponsors will have plan participants who are well-prepared for retirement.
About the authors:
John Wallen is Vice President and Wisconsin Construction Practice Leader for global insurance brokerage Hub International. He has more than 30 years of experience providing risk management consulting, effective insurance solutions and innovative risk and cost reduction strategies for the construction industry. John is active in multiple construction industry trade associations including ABC, AGC, ASA, Plumbing and Mechanical Contractors Associations as well as the Construction and Financial Management Association. John has been a featured speaker for several of these and other construction associations on various risk management topics.
Jim O’Shaughnessy, AIF®, is President, Retirement and Private Wealth for global insurance brokerage Hub International, serving as a strategic and operational leader for both the institutional and private wealth management teams. Jim has over 25 years of experience in the retirement plan industry. In 2005, he co-founded Sheridan Road Financial, growing the company to over $13 billion in assets under management before joining HUB International Retirement and Private Wealth through acquisition at the end of 2018.
[1]Insured Retirement Institute, Retirement Readiness Among Older Workers 2021, accessed October 12, 2021.
[2]GO Banking Rates, “Here’s How Much People Have Saved for Retirement in Every State,” June 23, 2020.
[3]Statista, “A Quarter Of Americans Have No Retirement Savings,” June 16, 2020.
[4]National Association of Plan Advisors, “What’s in the New SECURE Act 2.0?”, May 5, 2021.
[5]Bankrate, “Survey: 55% of Americans expect to search for a new job over the next 12 months,” August 23, 2021.
[6]Vanguard, How America Saves 2020, June 2020.
[7]Morningstar, Out of Sight, but Not Out of Mind: Helping Remote Workers with Retirement Managed Accounts, accessed October 13, 2021.
[8]GreenbergTraurig, “Coping with the Increase in 401(k) Cyberattacks and Fraudulent Plan Distributions, June 18, 2020.
[9]MHM, “Cybersecurity and Retirement Plans: What You Need to Know,” June 8, 2021.
[10]Audra R. Sherwood, Differences in Financial Literacy Across Generations, accessed October 13, 2021.
[11]Possible Finance, “32 Must-Know Financial Literacy Statistics in 2021,” February 15, 2021.
[12]American Psychological Association, Stress in America 2020, accessed October 13, 2021.
[13]The Wharton School, “What’s Behind the Growth of Financial Wellness Programs,” February 20, 2021.
Article sponsored by HUB