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Morningstar Sheds Light on Defined Contribution
Morningstar’s latest Retirement Plan Landscape report finds that while the average cost of workplace retirement plans continues to decline, expenses still vary significantly—especially for those in smaller plans, who often pay nearly three times as much as participants in large plans.
These cost discrepancies stem largely from economies of scale, with larger employers able to spread administrative expenses more efficiently. Despite the variation in fees, most participants across plans have access to high-quality investments, with over 94% of defined-contribution assets allocated to Morningstar Medalist-rated options.
The report highlights that even small plans can be cost-effective, with 20% of them coming in below the median cost for medium-sized plans. However, more than $600 billion has exited workplace retirement plans annually since 2020, often due to rollovers into IRAs when employees change jobs.
Finsum: Investors should carefully weigh whether their workplace plan offers better value through low fees and strong investment options before making such moves.
The Big New Trends in Retirement Investing
Defined contribution plans in 2025 will increasingly focus on generating sustainable retirement income as Social Security’s future remains uncertain and traditional pensions decline.
In-plan retirement income products, such as annuities, hybrid target-date funds, and systematic withdrawal strategies, will see greater adoption, driven by regulatory clarity from the SECURE Act and SECURE 2.0. AI-powered digital tools will enhance retirement planning by offering personalized projections, dynamic withdrawal strategies, and automated guidance on Social Security and tax-efficient drawdowns.
Employers will expand financial wellness initiatives, providing targeted pre-retirement education on income strategies, healthcare costs, and managing distributions. Recordkeepers and investment firms will integrate advanced retirement income solutions, making it easier for participants to transition from saving to spending.
Finsum: Regulatory support is expected to continue, reinforcing the shift toward holistic, income-focused retirement planning.
The Positives and Negatives of Managed Accounts for Defined Contribution
Managed accounts are set for a major transformation as current models often benefit providers more than participants due to high fees. Employers must evaluate how providers personalize portfolios and whether participants actively engage with these features.
While managed accounts generally offer strong investment management, fee structures can erode some of their value, requiring significant equity exposure increases to match target date fund returns. Personalized portfolio returns tend to fall within a narrow 5% to 7% range, with minor impacts from strategic asset allocation shifts.
A subscription-based model could better align incentives, offering lower-cost options for less engaged participants while providing premium services for those seeking greater customization. Inconsistencies in provider methodologies, driven by factors like risk tolerance and retirement readiness, highlight the need for greater transparency.
Finsum: This is an interesting strategy, but if done properly managed accounts are a great vehicle for retirement and defined contribution.
Managed Accounts: An Underrated Defined Contribution Tool
Managed accounts have evolved beyond simple investment tools to become a key retirement income solution within defined contribution plans. While their availability has increased significantly over the years, participant adoption remains low, with only 7% utilizing these accounts despite widespread access.
Critics point to ongoing fees as a drawback, though proponents argue that managed accounts provide tailored financial planning, including retirement timing and Social Security optimization.
Some newer offerings even incorporate annuities or structured withdrawal features, turning managed accounts into a direct retirement paycheck solution. This customization makes them an attractive option for plan sponsors considering alternatives to traditional target-date funds.
Finsum: As the marketplace continues to adapt, managed accounts are gaining traction as a more personalized and flexible retirement planning tool.
Retirement Contributions Increasing with SECURE 2.0
A key advantage of a 401(k) is its generous contribution limits, which allow workers under 50 to save up to $23,500 in 2025, not including any employer match. Those 50 and older can save even more, with a standard limit of $31,000.
Thanks to a recent SECURE 2.0 Act update, workers aged 60 to 63 can contribute an additional $11,250 as a catch-up, bringing their total contribution limit to $34,750 for 2025. This higher limit, tied to inflation, could increase further in the future but reverts to $7,500 once participants turn 64.
Maximizing contributions is most beneficial for high earners looking to reduce taxable income while saving for retirement, but even smaller contributions can significantly impact long-term savings.
Finsum: Advisors and investors should stay informed about future 401(k) changes to make the most of their retirement savings opportunities.