Q4 2024
DC Pulse // 4Q 2024 in Review
Research, regulations, returns and trends in DC
Q4 2024
DC Pulse // 4Q 2024 in Review
Research, regulations, returns and trends in DC
MFS DC Takes
Participant Expectations: 61% of participants expect a more gradual transition (reducing hours or switching jobs) into retirement. |
Regulatory and Legislative Developments in 2025: 71% of sponsors say the changing regulatory and legislative landscape keeps them up at night. |
Retirement Realities: 75% of retirees reported a hard stop (where they stopped working for pay entirely) when they retired. |
Defining "Long Term" 83% of participants define long-term as 5 years or more; 53% say it is 10+ years when thinking about retirement investments. |
Plan Sponsor Focus for 2025: 82% of plan sponsors are reviewing SECURE 2.0 provisions; 57% are evaluating the investment lineup holistically. |
The Path Forward for Corporate DB Plans: DB plans may want to keep an eye on funded status, pension risk transfer lawsuits and PBGC1 premiums. |
Source: MFS US Retirement Outlook 2025.
DC Regulatory and Legislative Happenings
In the upcoming term, the Supreme Court has agreed to hear a case regarding the burden of proof for prohibited transactions between plan sponsors and service providers under ERISA.
The case, Cunningham et al v. Cornell University et al has been ongoing since 2016.
If the outcome of this case results in a lower bar for plaintiffs to sue plans (and get to the discovery stage), it could make it more expensive to offer and insure retirement plans due to increased litigation risk and costs.
A decision is expected by June 2025.
The DOL announced the start of its data collection efforts to build the Retirement Savings Lost and Found database.
This database was mandated by SECURE 2.0 and will be an online tool where plan administrators, recordkeepers and other service providers are encouraged to voluntarily submit data to populate the system. Industry groups continue to raise concerns about the database, including privacy and data security concerns.
Once operational, the database will enable individuals to search for unclaimed benefits associated with former employers.
While there has not been much movement in reopening DB plans since the IBM announcement in late 2023, pensions continue to be a hot topic, and were a key negotiation point in the labor dispute between Boeing and their machinists’ union, which ultimately settled for an enhanced defined contribution match.
As part of contract negotiations, Southwest Airlines established a cash balance plan for its pilots where it contributes 1% of wages to the new plan, with contributions increasing to 2% in 2026. Southwest provides a 17% employer contribution to pilots in their 401(k) plan, and the new plan structure allows the spillover amount (if the pilot maxes out) to be contributed to the new cash balance plan.
Retirement plan contribution limits effective January 1, 2025, include:
401(k) Contributions:
IRA Contributions:
Health savings accounts (HSAs) contribution limits effective January 1, 2025, include:
*Reminder Catch-ups for those 50+ to be made as a Roth contribution for those making above $145,000 (not yet effective until 2026, but some sponsors may have elected to implement in 2025).
Sources:
https://www.winston.com/en/blogs-and-podcasts/benefits-blast/supreme-court-to-decide-pleading-standard-in-prohibited-transaction-litigation
https://www.plansponsor.com/dol-launches-data-collection-effort-for-lost-found-retirement-initiative/?utm_source=newsletter&utm_medium=email&utm_campaign=Newsdash&oly_enc_id=1138E5729701I4V
https://www.pionline.com/defined-contribution/boeing-union-workers-ratify-contract-boosting-401k-match-db-plan-not
https://www.pionline.com/defined-benefit/southwest-airlines-launches-cash-balance-pension-plan-pilots?utm_source=Sailthru&utm_medium=email&utm_campaign=PIDaily-MoneyManagersDaily-20241127
https://www.irs.gov/pub/irs-drop/n-24-80.pdf
https://www.irs.gov/pub/irs-drop/rp-24-25.pdf
DC Market Data
Source: Mercer CFA Institute Global Pension Index 2024. See Disclosures for survey methodology.
Investment Index Returns
Sources:
SPAR, FactSet Research Systems Inc., MFS analysis. Illustrative 60/40 portfolio comprises 60% S&P 500 and 40% Bloomberg US Aggregate and is rebalanced monthly. This hypothetical example is for illustrative purposes only. MSCI indices shown are net returns. Returns for the Bloomberg Global Aggregate Index are hedged to USD.
Cash is based on returns for the FTSE 3-month Treasury Bill Index.
The historical performance of each index cited is provided to illustrate market trends; it does not represent the performance of a particular MFS® investment product. It is not possible to invest directly in an index. Index performance does not take into account fees and expenses. Past performance is no guarantee of future results. You should consider your client’s financial needs, goals, and risk tolerance before making any investment recommendations.
1Pension Benefit Guaranty Corporation.
2Methodology: For the Mercer CFA Institute Global Pension Index, the overall index value for each system represents the weighted average of the three sub-indices. The weightings used are 40% for the adequacy sub-index, 35% for the sustainability sub-index and 25% for the integrity sub-index. These have remain unchanged since the first Index was published in 2009.
Keep in mind that all investments, including mutual funds, carry a certain amount of risk including the possible loss of the principal amount invested.
Participant Expectations: 61% of participants expect a more gradual transition (reducing hours or switching jobs) into retirement. |
Regulatory and Legislative Developments in 2025: 71% of sponsors say the changing regulatory and legislative landscape keeps them up at night. |
Retirement Realities: 75% of retirees reported a hard stop (where they stopped working for pay entirely) when they retired. |
Defining "Long Term" 83% of participants define long-term as 5 years or more; 53% say it is 10+ years when thinking about retirement investments. |
Plan Sponsor Focus for 2025: 82% of plan sponsors are reviewing SECURE 2.0 provisions; 57% are evaluating the investment lineup holistically. |
The Path Forward for Corporate DB Plans: DB plans may want to keep an eye on funded status, pension risk transfer lawsuits and PBGC1 premiums. |
Source: MFS US Retirement Outlook 2025.
In the upcoming term, the Supreme Court has agreed to hear a case regarding the burden of proof for prohibited transactions between plan sponsors and service providers under ERISA.
The case, Cunningham et al v. Cornell University et al has been ongoing since 2016.
If the outcome of this case results in a lower bar for plaintiffs to sue plans (and get to the discovery stage), it could make it more expensive to offer and insure retirement plans due to increased litigation risk and costs.
A decision is expected by June 2025.
The DOL announced the start of its data collection efforts to build the Retirement Savings Lost and Found database.
This database was mandated by SECURE 2.0 and will be an online tool where plan administrators, recordkeepers and other service providers are encouraged to voluntarily submit data to populate the system. Industry groups continue to raise concerns about the database, including privacy and data security concerns.
Once operational, the database will enable individuals to search for unclaimed benefits associated with former employers.
While there has not been much movement in reopening DB plans since the IBM announcement in late 2023, pensions continue to be a hot topic, and were a key negotiation point in the labor dispute between Boeing and their machinists’ union, which ultimately settled for an enhanced defined contribution match.
As part of contract negotiations, Southwest Airlines established a cash balance plan for its pilots where it contributes 1% of wages to the new plan, with contributions increasing to 2% in 2026. Southwest provides a 17% employer contribution to pilots in their 401(k) plan, and the new plan structure allows the spillover amount (if the pilot maxes out) to be contributed to the new cash balance plan.
Retirement plan contribution limits effective January 1, 2025, include:
401(k) Contributions:
IRA Contributions:
Health savings accounts (HSAs) contribution limits effective January 1, 2025, include:
*Reminder Catch-ups for those 50+ to be made as a Roth contribution for those making above $145,000 (not yet effective until 2026, but some sponsors may have elected to implement in 2025).
Sources:
https://www.winston.com/en/blogs-and-podcasts/benefits-blast/supreme-court-to-decide-pleading-standard-in-prohibited-transaction-litigation
https://www.plansponsor.com/dol-launches-data-collection-effort-for-lost-found-retirement-initiative/?utm_source=newsletter&utm_medium=email&utm_campaign=Newsdash&oly_enc_id=1138E5729701I4V
https://www.pionline.com/defined-contribution/boeing-union-workers-ratify-contract-boosting-401k-match-db-plan-not
https://www.pionline.com/defined-benefit/southwest-airlines-launches-cash-balance-pension-plan-pilots?utm_source=Sailthru&utm_medium=email&utm_campaign=PIDaily-MoneyManagersDaily-20241127
https://www.irs.gov/pub/irs-drop/n-24-80.pdf
https://www.irs.gov/pub/irs-drop/rp-24-25.pdf
Source: Mercer CFA Institute Global Pension Index 2024. See Disclosures for survey methodology.
Sources:
SPAR, FactSet Research Systems Inc., MFS analysis. Illustrative 60/40 portfolio comprises 60% S&P 500 and 40% Bloomberg US Aggregate and is rebalanced monthly. This hypothetical example is for illustrative purposes only. MSCI indices shown are net returns. Returns for the Bloomberg Global Aggregate Index are hedged to USD.
Cash is based on returns for the FTSE 3-month Treasury Bill Index.
The historical performance of each index cited is provided to illustrate market trends; it does not represent the performance of a particular MFS® investment product. It is not possible to invest directly in an index. Index performance does not take into account fees and expenses. Past performance is no guarantee of future results. You should consider your client’s financial needs, goals, and risk tolerance before making any investment recommendations.
1Pension Benefit Guaranty Corporation.
2Methodology: For the Mercer CFA Institute Global Pension Index, the overall index value for each system represents the weighted average of the three sub-indices. The weightings used are 40% for the adequacy sub-index, 35% for the sustainability sub-index and 25% for the integrity sub-index. These have remain unchanged since the first Index was published in 2009.
Keep in mind that all investments, including mutual funds, carry a certain amount of risk including the possible loss of the principal amount invested.