T. Rowe Price: Trends that will shape retirement in 2025

During its recent annual U.S. Retirement Market Outlook press briefing, T. Rowe Price offered some research-based insights on major themes they expect to shape the retirement landscape this year.

A panel of the firm's retirement experts shared their perspectives on trending topics that will present challenges and opportunities this year for the industry and for retirement savers.

"As the retirement landscape continues to evolve, industry leaders must remain agile and forward-thinking in order to best serve the needs of today's and future retirees," said Michael Davis, head of global retirement strategy at T. Rowe Price, and host of the panel. "Our priority at T. Rowe Price is to stay ahead of the curve, continuously anticipating shifts in policy, demographics, and technology to deliver innovative retirement solutions that put our clients on the path toward better retirement outcomes."

The panel featured commentary from the following: Kathryn Farrell, target date portfolio specialist; Jessica Sclafani, global retirement strategist; Rachel Weker, senior retirement strategist; Aliya Robinson, director of congressional affairs

Key topics from the discussion

Major topics addressed by these experts include:

• Continued evolution of Qualified Default Investment Alternatives (QDIAs) that use underlying target date strategies, collective investment trusts, and the demand for more personalization.
• Increasing interest in retirement income solutions amid a growing desire from plan sponsors to keep their participants in-plan and offer a range of diverse solutions.
• Growing momentum of emergency savings programs, translating into expanded access to solutions, increased participant engagement, and balancing near-term financial needs with retirement outcomes.
• Concerted effort is expected from Congress to increase coverage, expand access to retirement plans, and increase retirement income options.

Considerations for plan sponsors, advisors

The report also shared some considerations for plan sponsors, consultants and advisors who are working in these areas. These considerations include:

Qualified Default Investment Alternatives (QDIAs):

• • • Take a closer look at target date strategies: Target dates remain the most popular QDIA option in the industry and continue to evolve. “Prudent evaluation of the available implementation styles and vehicles can help ensure your plan is using the right solution that meets participant needs,” the report said.
    • Rethink managed accounts: Plan sponsors who have a high conviction in their target date QDIA can still offer participants an opportunity to personalize their investing experience near retirement. “It no longer needs to be target date solutions or personalization—it can be both,” the report said.

Emergency savings

Weigh the benefits versus the risks: Employers need to balance providing short term financial relief against the risk of reduced, long-term retirement savings. Recordkeepers, consultants, and/or advisors can assess needs and assist plan sponsors in implementing effective solutions, the report said.

Implement pilot programs: Pilot programs allow employers to assess the effectiveness of emergency savings features before full-scale implementation, the report explained. This phased approach helps in finetuning the programs to better suit participants’ needs and organizational capabilities.

Communicate and educate: Effective communication and education about the benefits and mechanics of emergency savings programs are vital to achieving higher participation rates and better financial outcomes.
Retirement Income:

Different plans have different priorities: The needs of the plan population should drive plan priorities. For some plan sponsors, focusing on other needs such as student loan repayment or emergency savings programs may take precedence.

One size does not fit all participants: Unlike the savings phase of the retirement journey where the primary goal is to save, participant needs are diverse in retirement, requiring a broad array of options, tools, and services.

Define success to set expectations: The retirement income market is still in its infancy, with modest participant adoption. “Rather than focusing on short-term adoption rates, we encourage plan sponsors to consider success as offering a range of diverse solutions and services for retirees,” the report said.

Policy Overview

Recent years have seen significant developments in retirement policy, particularly with the SECURE Acts of 2019 and 2022. The report said that looking ahead, tax reform will be a primary focus for Congress in 2025, potentially affecting retirement policy, along with several legislative and regulatory themes outlined in this section.

Tax reform is imminent: With the expiration of several major provisions of the Tax Cuts and Jobs Act at the end of 2025, tax reform is imminent, the report said. Amid political discourse and partisan polarization, the search for revenue sources could target the retirement industry, including:

• • • “Rothification” of retirement contributions, i.e., transitioning from traditional pretax to Roth (after tax) contributions
    • Implementing caps on certain high-level IRAs

Parity for 403(b) plans: Current securities laws prevent 403(b) plans from utilizing collective investment trusts (CITs) in the same way as other retirement plans. The SECURE 2.0 Act initiated changes to address this, but further legislation is required for 403(b) plans to fully utilize CITs and unregistered insurance company separate accounts. Congress is working toward passing securities legislation to address these needs.

SECURE 2.0 Act enhancements: This law ushered in a host of mandatory and optional changes, but further guidance is still needed for several provisions. The firm expects updates and technical corrections to provide greater clarity and guidance on:

• • • The structure and management of (Pension-Linked Emergency Savings Accounts (PLESAs)
    • Implementing student loan matching provisions
    • The implementation of Roth catch-up contributions

Fiduciary Rule pause: The 2024 Fiduciary Rule, which aimed to revise the standards and scope of fiduciary responsibilities for financial professionals under the Employee Retirement Income Security Act of 1974 (ERISA), faced significant legal challenges, delaying its implementation. Additional litigation or Department of Labor action will determine its future.

Potential environmental, social, and governance (ESG) Rule challenges: The U.S. Supreme Court’s June 2024 Loper Bright decision struck down the long-held standard for judicial review of rulemakings by regulatory agencies and shifted interpretative authority from the executive branch to the judicial branch. This change could influence several federal court rulings challenging the DOL’s ESG rule, the report said.

Congressional themes for 2025 and beyond: Ongoing congressional discussions focus on two themes, according to the report:

• • • Increasing retirement coverage—There is a concerted effort to bring new people into the system and expand access to retirement plans. Proposals range from mandating employer-provided retirement plans to reducing plan eligibility age from 21 to 18.
    • Retirement income—After years of prioritizing the accumulation of savings, the industry focus is shifting to the spending phase, aiming to help ensure that savings last throughout retirement.

Litigation reform: ERISA-related, class-action litigation and settlements have surged over the last decade. In 2023, class-action settlements totaled $353 million. Fear of litigation was the top deterrent listed to the implementation of retirement income solutions in the DC Consultant Study. The industry is pursuing legislative changes to address these concerns.

Social Security: Social Security is vital to millions of Americans, but the Social Security Trust Fund is projected to exhaust its reserves by 2033, which could lead to a potential 20% cut in benefits. Prompt congressional action is needed as further delay narrows the set of options to fix the program, the report said.

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