The last two years dealt employers a multitude of disruptive challenges. Looking forward into 2022, there’s a lot of economic and pandemic-related uncertainty and market instability. Here are three themes ERISA plan sponsors need to keep an eye on in 2022.
Inflation is a hot button topic. From November 2020 to November 2021, the Consumer Price Index (CPI) rose 6.8%, the largest 12-month increase in almost 40 years. How are retirement plans affected by increases in prices for everyday goods like meat (up 13%) and gas (up 58%)?
When these prices hike up, the paychecks of participants in defined contribution plans don’t go as far. With the cost of living rising, some participants may look to upping their take-home pay by choosing to decrease their plan contribution rates. Some may stop contributing at all, which could change the plan’s fee structures. Loans and hardship withdrawals could also increase with rising prices. Plan sponsors need to ask themselves: do our benefits properly address participants’ worries about inflation?
Labor market shifts
The hybrid and remote work environments evolved quickly, with the pandemic being a large catalyst. The job market in the US has also seen a mass exodus. According to data from the Bureau of Labor Statistics (BLS), 6.3 million people left the workforce in November 2021 alone.
A tight labor market means employers need to consider strategies to attract and retain top talent. This could range from offering stronger retirement benefits (such as matching contributions) to flexible work hours to childcare assistance or parental family leave and more.
Increased DOL scrutiny on cybersecurity practices
As our world further accelerates online, plan sponsors need to take a proactive approach to cybersecurity. For the first time, the Department of Labor (DOL) released guidance on cybersecurity best practices for fiduciaries, recordkeepers, and participants last April. Soon after, the DOL started investigations regarding retirement plan cybersecurity practices, requesting comprehensive sets of documents related to the plan’s cybersecurity or data security practices to assess cybersecurity risk and the safety of plan data. Relationships with service providers, such as recordkeepers, attorneys, investment managers, and advisors, are also being reviewed by the DOL to ensure data protection.
Plan operations should be reviewed and compared to the DOL’s guidance. Plan sponsors need to learn about service providers’ cybersecurity protocols. It’s important to review whether service providers are contractually permitted to cross-sell participant data. Providers’ SOC1 reports should also be carefully reviewed. This is an essential step to monitor service providers accurately.
Plan sponsors will need to focus their attention on inflation, large labor market shifts, cybersecurity, and other audit concerns in 2022.
MarksNelson can assist plan sponsors of ERISA plans evaluate whether they are in compliance and offer suggestions for improvement. Reach out to our team today.