Administration December 20, 2016

Retirement Plan Communications and Planning Going Digital

Employer-sponsored retirement plan providers are increasing digital offerings, but participants may need prompting to use these tools.
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The world is undergoing a digital transformation, and everything is going digital now, including personal financial management and commerce, says TIAA’s Chief Digital Officer and CIO, Scott Blandford, who is based in Iselin, New Jersey. And, the same is true for employer-sponsored retirement plan data and communications.

The digital transformation has moved more slowly with plan providers, but it is inevitable that it will be required, Blandford tells PLANSPONSOR.

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Corporate Insight Senior Retirement Analyst Andrew Way, in New York City, says, “It is important for [plan providers] to get on board because of the way industry is going right now. There are two segments of plan sponsors regarding retirement planning—one says ‘let us do all work,’ but a large and growing segment is taking the approach that they want employees to engage with the plan and realize how important it is to save and how it is on them now to save.”

One way to help people do that, Way tells PLANSPONSOR, is to provide a modern online experience, where they can see their account data, where it is going in the future, how to allocate investments properly and the importance of saving often and more. He says retirement readiness and income projection tools on websites are growing and popular. “It is important to provide participants with knowledge to take control.”

Corporate Insight follows the digital offerings of 20 retirement plan providers—19 of which are the largest providers according to assets under management (AUM) in the PLANSPONSOR Recordkeeping Survey. Four key trends Corporate Insight is seeing among the 20 retirement plan providers it tracks include:

  • Increased focus on employee retirement readiness and financial wellness;
  • Proliferation of responsive design;
  • Emergence of comprehensive mobile and tablet apps; and
  • More personalized approach to retirement planning.

According to Blandford, TIAA also offers Plan Focus, a product for plan sponsors. “We recognize that offering features and functions isn’t going to be enough, plan sponsors expect coordination of the digital tools they use,” he says. “We think sponsors will want to position plans and providers carefully, manage features of the plan directly through the portal, offer text messaging alerts, and get real time updates on key processes, reports, etc.”

TIAA has seen a 200% increase in administrator web property; it has transformed more than 100 formerly paper forms to a digital experience, and there is a 73% increase in use of some key features on the administrator website. “It helps them with adoption and utilization. They don’t need training because they know how other digital tools work,” Blandford adds. “Plan sponsors are under time and budget pressure, our digital tools save them time. They will have more time to do other things they do for their business.”

NEXT: Increase in retirement plan providers’ digital offerings

Among the 20 retirement plan providers that Corporate Insight follows, all offer calculators or interactive planning tools on their websites, five offer a retirement income tool on a mobile app, three offer it on a tablet app and nine offer an optimized mobile website.

According to Corporate Insight’s survey, Satisfying Today’s Retirement Plan Participant, over the course of the past year, 12 firms have made meaningful additions or improvements to their retirement readiness tools. Eight of them, for example, added retirement readiness figures directly to homepages.

The demand for retirement income projections is clearly demonstrated by the survey data, in which Corporate Insight polled approximately 1,500 defined contribution (DC) plan participants on a myriad of digital-related retirement plan topics. Roughly 63% of all respondents answered that a retirement income projection is a feature that is either extremely important or very important to include on the participant site, and a full tool whose results include this projection was deemed extremely or very important by 65%.

A recent trend is offering tools that allow participants to input external financial information for accurate projections. But most participants didn’t want to take the time to provide inputs, Way says, so some plan providers are using an automatic import feature, in which they scrape data from their site and use that in income projections, but they also offer the ability for participants to make modifications to get a more in-depth picture. These tools make specific recommendations, such as save 2% more of salary for 90% income replacement.

Way says there has also been a proliferation of responsive design. Using the same URL, participants can log in from a phone, tablet or desktop computer, and the tool is optimized regardless of screen size. Six of the seven most recent firms to overhaul their websites have introduced this.

In addition, contribution rate management is offered by 10 firms from a mobile website, including responsive or traditional sites. Contribution rate management from a tablet is offered by six firms, and contribution rate management from a phone app is offered by 10. Providers are also offering rebalances, simple fund exchanges, contribution rate changes and requests for withdrawals or rollovers.

NEXT: Offerings versus usage

Way notes that while Corporate Insight survey data shows individuals deem retirement income tools as important, many do not take advantage of their availability; only 24% of all respondents stated they viewed their retirement readiness rating or chart in the previous 12 months, and only 23% used a retirement planning tool. Just 34% of participants are very satisfied with their provider’s website.

The gap in demand and usage could be explained by participants not being aware of what is available to them for free online on their provider site, Way says. For example, in Corporate Insight’s annual Retirement Plan Monitor Awards report, Fidelity got a gold medal for online resources, but many Fidelity participants didn’t know what’s available for free. “Employers and recordkeepers need to do a better job of communicating what resources are available,” Way adds.

Meanwhile, TIAA is seeing success, with a 200% growth in use by participants of its mobile app by participants, as it makes more transactions available.

“We’ve done a couple of things to get more use. We realized a year ago that we needed to look at web and mobile not as tech projects but as online stores,” Blandford says. “We see what customers are doing, what they can’t find and making changes that day. Another thing is keeping language really simple.”

According to Blandford, on its landing page, TIAA makes tools get simple, clear billing and are easy to find. TIAA also offers outbound messaging—sending an email or text to participants that it is a great time to do a checkup.

Blandford also notes that certain digital features are popular across age groups—basic things such as “see how I’m doing” compared with people my age—but older generations are more concerned about retirement planning and how to take income. “Popularity of digital transactions depend on participants’ journey in their life,” he says.

Ask the Experts December 20, 2016

(b)lines Ask the Experts – Discovering an Excess Deferral in the Year of the Excess

“I just discovered that our CEO exceeded the Internal Revenue Service (IRS) 402(g) elective deferral limit to our 403(b) plan by a few hundred dollars.
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“The deferrals have already been deposited into her account with the recordkeeper. Since 2016 has not ended as yet, can I simply request the money back from the recordkeeper and arrange for our payroll department to fix her W-2 so that the proper deferral amount is shown?” 

David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer: 

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Thank you for your question, as it addresses a common misconception among plan sponsors concerning what happens if one discovers an excess deferral in the year of the excess (for example, if a 2016 excess deferral is discovered in 2016).

But before we get to that, the Experts would suggest that you confirm the individual is not eligible for elections that may allow her to exceed the 402(g) limit, such as the age-50 catch-up election or the 15-year catch-up election for 403(b) plans, if permitted under the plan document. For example, if your CEO is age 50 or older as of 12/31/2016, she may defer up to $24,000 in 2016, as opposed to the standard 402(g) limit of $18,000. The 15-year catch-up is much more complicated than the age-50 catch-up election, but, if your CEO qualifies for that election, up to an additional $3,000 may be deferred over and above the 402(g) limit. Thus, if she only qualified for the 15-year catch-up, and not the age-50 catch-up, she may be able to defer up to $21,000 in 2016. However, if she qualifies for BOTH catch-up elections, it may be possible for your CEO to defer up to $27,000 in 2016.

If your CEO still has an excess after reviewing the catch-up options that might be available to her, there is indeed an excess deferral that should be corrected. Though the procedure for correction of the excess is slightly different than when an excess is discovered after the close of the year, the procedure does not permit the plan sponsor to request the money back from the vendor and correct the W-2 as you describe, so plan sponsors should NOT take such an action. According to Treas. Reg. 1.402(g)-1(e)(3), a distribution of the excess deferral shall be made by the plan to the participant, and such distribution must satisfy the following conditions:

(A) The individual designates the distribution as an excess deferral. If any designated Roth contributions were made to a plan, the notification must identify the extent to which, if any, the excess deferrals are comprised of designated Roth contributions. A plan may provide that an individual is deemed to have notified the plan of excess deferrals (including the portion of excess deferrals that are comprised of designated Roth contributions) for the taxable year calculated by taking into account only elective deferrals under the plan and other plans of the same employer and the plan may provide the extent to which such excess deferrals are comprised of designated Roth contributions. A plan may instead provide that the employer may make the designation on behalf of the individual under these circumstances.

(B) The correcting distribution is made after the date on which the plan received the excess deferral.

(C) The plan designates the distribution as a distribution of excess deferrals.

Since the excess is distributed in the same year of the deferral of such excess, the excess, as well as income related to the excess, are both taxed in 2016. The plan recordkeeper will provide the participant with the appropriate tax forms so that the participant can declare this distribution of excess (and related earnings) as taxable income in 2016. The W-2 shall NOT be adjusted, and would reflect the total deferral, including the excess deferral amount. Note that this taxation differs from an excess deferral in 2016 that is distributed in 2017, as the income related to the excess would be taxed in 2017, the year of the distribution, and not in 2016.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.  

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

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