Providers, Call Centers Strive to Educate Against Hardship Withdrawals

By Javier Simon | August 10, 2017
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While taking a loan from a DC plan account balance is not ideal, it may be better than taking a hardship withdrawal. “If you take a loan from your plan, you immediately set yourself up for a repayment schedule,” says Unvarsky. “We also encourage people to explore student loans for their children and be a cosigner. We also try to make sure they have filed for federal student aid. It may be more cost effective to take a student loan as opposed to tapping into retirement plans.”

However, several participants resort to hardship withdrawals after they’ve exhausted other resources including plan loans and emergency savings. And turning to DC plan assets before retirement can be as much an emotionally draining experience as it is a financial one. That’s why Schumaker and Unvarsky agree that empathy is the key driver of many conversations taking place in their call centers.

“If you’re approaching the need for a hardship withdrawal, you’re in a dire situation and you may be in a state of anxiety,” says Schumaker. “So we try to really spend time with the participant and make sure they fully understand what’s going on.”

However, a sound strategy around fostering financial wellness among participants may help employees avoid needing a hardship withdrawal or loan in the first place. Various providers offer different tools and resources that can guide participants in every facet of their financial lives from budgeting to emergency savings and developing attainable retirement savings goals.

Unvarsky says Prudential focuses on meeting these goals through multi-channel communication. “If customers sign up to our website, they’ll find resources and tools that will educate them on the importance of saving for retirement and calculating how much they should be saving to achieve their goals.”

Research by the International Foundation of Employee Benefit Plans also suggests that plan design and education can help limit participant loans. But education alone is not enough. The information needs to be actionable and a degree of effort needs to be put in place to promote engagement and raise awareness. The human component can help in this regard.

Unvarsky says her firm works with different companies to run on-site educational campaigns where employees can discuss financial topics face-to-face with professionals.

“When a person enrolls in a plan, we’re going to educate them about the purpose of the [DC] plan as a long term savings vehicle for retirement and how to build other emergency savings,” says Schumaker. “But we recognize that when the person calls in, they may not have those in place and are in a last resort … Each participant has a unique need and we need to be sensitive to that. Our job fundamentally is to educate the participant on what they have available to them and what the implications can be. The human interaction is a critical part to that.”