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DC Plans Risk Stress Test: Can Providers Keep up?

Author

Alison Salka, Ph.D.
Principal Consultant
LIMRA and LOMA
asalka@limra.com

July 2025

The retirement plans industry is navigating a period of complexity and change. The industry is trying to balance the need for valuable, scalable services with the realities of aging technology infrastructures and intensifying margin pressures. Record keepers are seeking new operational efficiencies to address these pressures as well as identify innovations to remain competitive.

As advisor, sponsor, and participant expectations for personalized, digital-first engagement grow and regulatory demands increase, the industry must adapt on multiple fronts. Drawing from insights shared by more than 30 industry experts, this report explores the primary risks and opportunities that will shape the defined contribution (DC) marketplace over the next three to five years.

Industry Risks

What top risks do these experts cite? These range from cyberthreats to reputational damage.

Figure 1. Industry Risk Rating

(Risk on 1-10 scale where 10 is highest risk )

Emerging Cyberthreats

Cybersecurity was identified as the top industry risk. The growing amount of accessible data from retirement platforms continues to expand potential attack opportunities. Service partnerships and vendor relationships expand this risk exponentially. As personal and financial data become more interconnected, retirement providers must invest in robust defenses to safeguard assets and trust.

LIMRA’s FraudShare found plan fraud incidents were up 84 percent in 2024 over 2023. The average account balance targeted was $229k, and the average disbursement requested was $101k, according to the 2025 LIMRA Financial Crimes and Fraud Prevention Benchmark Study and FraudShare data analysis. Phishing attacks aimed at gaining unauthorized access to accounts are expected to continue; elder abuse and fraud will as well. In addition, ransomware attacks on record keepers can freeze operations, expose sensitive plan information, and quickly tarnish brand reputation. A breach not only impacts financial security but can also cause long-term reputational damage.

Fee Compression

Fee compression continues to exert pressure on providers, challenging their ability to maintain service quality. As fees decrease due to competitive and regulatory pressures, there is a growing concern that participant services could be negatively impacted without additional operational efficiencies. Providers are increasingly looking for ways to streamline processes through automation and outsourcing to remain competitive while managing tight margins.

Additionally, continued fee pressure is expected to drive further merger and acquisition (M&A) activity in the industry, as firms seek to achieve greater scale, consolidate resources and leverage operational synergies to survive in a low-fee environment. Record keepers are also looking to develop ancillary and value-added services to supplement revenue. They want to do this without alienating their distribution partners, which can be a challenge.

Litigation Risk

The risk of litigation, particularly concerning fiduciary responsibility and excessive fee claims, remains high. In fact, 2025 is on track to be one of the busiest litigation years ever. New law firms see opportunities in ERISA litigation and are bringing new cases. These firms are learning from suits they file for small plans that receive smaller settlements. This means settlement values are going down, but the number of suits is increasing.

What will the future bring? Unfortunately, the recent Cornell decision will only enable more lawsuits. The decision means claims are easier to bring and more likely to move forward. Since an estimated 90 percent of cases settle, there will likely be a surge in settlements. While Congress could change statutory structure and address the problem for the industry, that solution is unlikely.

Technology/Service Gaps

Another risk cited by many professionals is the inability of technology platforms and service models to keep pace with needs and expectations. Outdated systems hinder the ability to deliver personalized, seamless experiences, and those who fail to invest in modernization face potential obsolescence or acquisition. Investments in cloud migration, cybersecurity upgrades, and mobile-first participant interfaces are increasingly essential. Those who are unable to address modernization issues may fuel M&A activity and continued consolidation.

Industry Capability

On a 1-to-10 scale, respondents rated service providers at an average of 6.3 (median 7) on a 10-point scale. This suggests a moderate level of preparedness but with definite room for improvement. Strengths likely exist, but the industry isn’t prepared on all fronts. Scores ranged from 3 to 9, which suggests there may also be differences among service providers; some are managing well, and others are not.

The rating also points to potential vulnerabilities. These may be emerging cybersecurity threats, litigation risk and economic volatility. Overall, the results suggest some confidence in the industry's risk response capabilities, but not complete assurance. This highlights the need for continued investment in risk mitigation strategies and modernization of existing systems. A good strategy will help mitigate and plan for risk.

Conclusion

Providers that can successfully navigate cybersecurity, fee pressure, litigation, and technological demands while capitalizing on personalization, artificial intelligence (AI), digital transformation, and expanded income solutions will be well positioned to lead the next era of retirement readiness.

 

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