Compliance May 5, 2015

Fidelity Wants Clarification About Loan and Hardship Records

Fidelity wants the IRS to modify or withdrawal a recent newsletter article because it potentially establishes regulatory ambiguity.
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Fidelity is taking issue with a recent Internal Revenue Service (IRS) reminder to retirement plan sponsors about their duties to track participant loans and hardship withdrawals.

The IRS recently published a newsletter article indicating that documentation must be created and maintained by plan sponsors related to hardship distributions and loans—and that electronic self-certification is not sufficient to substantiate a participant’s hardship.

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According to Fidelity, this article, appearing in the Employee Plans News publication, “does not have the effect of a regulation.” That’s a good thing, the firm says, because it feels some information contained in the article is “contrary to recent indications from IRS representatives.” Because of this, Fidelity is asking the IRS to modify or remove the article entirely from its website and publication archives.

The text of the article was published online on April 1, indicating that a plan sponsor must receive and retain documentation from participants supporting the reason for a hardship distribution from a 401(k) plan. In addition, the IRS stated that directly that “electronic self-certification is not sufficient documentation of the nature of a participant’s hardship.”

Fidelity explains the article took a similar position regarding documentation of participant loans. It also “purports to establish a new after-the-fact requirement,” Fidelity says, which, if applicable, would require plan sponsors to generate and maintain “documentation verifying that the loan proceeds were used to purchase or construct a primary residence.”

As noted by Fidelity compliance staff, the Employee Plans News publication is a periodic IRS newsletter with retirement plan information for retirement plan practitioners. “While it does not have the effect of a regulation or formal interpretation, it may be indicative of the position the IRS is likely to take when reviewing plan procedures,” Fidelity explains.

The firm feels the position of the article on loans and hardship circumstances “does not appear to be supported by IRS regulations and is contrary to recent indications from IRS representatives suggesting that such documentation is not required.”

“The Employee Plans News article has taken many practitioners by surprise because the IRS has had on its business plan an item to provide formal guidance on hardship substantiation,” Fidelity adds. “We are working with industry and plan sponsor groups to get the IRS to modify or withdraw the article until formal guidance is issued.”

Data and Research May 5, 2015

Nurses' Savings Still Need Critical Care

Time and a lack of investing confidence are among the retirement challenges nurses face, Fidelity Investments finds in a study of nurses’ financial behaviors.
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Nurses need financial guidance, Fidelity finds in a study, and when they use advice or education offered by their employers, about a third take a specific action, mostly to boost plan contributions.

Fidelity’s “Financial Checkup on Nurse’s Retirement Readiness” finds a range of financial behaviors among professional nurses, some positive, and some that may mean this population needs more guidance. Nurses’ total savings rates are up and they are currently saving 12%. The study also finds that 31% of nurses increased their contribution amount to a workplace retirement plan in the last year.

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Recognized as one of the nation’s most demanding professions, nursing means long work shifts, ongoing regulatory changes and the need for a constant focus while making critical decisions regarding the health of patients. In such a challenging work environment, personal matters are often sacrificed or take a back seat, with finances serving as a perfect example.

The less attention paid to something, the less confident someone will be, in most cases. According to Fidelity’s study, more than half the nurses surveyed (56%) say they lack confidence in making financial decisions—and four in 10 (41%) attribute this to the fact they don’t have enough time to focus on them. 

While an overwhelming majority of nurses—92%—say they want to learn more about financial planning, this struggle for time continues to be a challenge with implications for retirement readiness.

The good news: despite their lack of financial confidence, many nurses are taking positive steps with their money, the study says. For instance, 84% are actively saving for the future. Fidelity’s analysis of its own data examining the retirement savings behaviors of more than 38,000 nurses supports this, showing nurses are diligent savers with a total savings rate (employer plus employee contribution to a workplace savings plan) of 12%—close to matching Fidelity’s suggested 15%.

The workplace can be an easy entry point for many nurses to learn more about financial planning, as most retirement savings plan providers offer free retirement guidance. Surprisingly, this accessible resource is not commonly used—62% of nurses who have access to retirement guidance at work don’t take advantage. Again, the biggest obstacle is time, with one-third (33%) citing a lack of time as a barrier.

“Health care employees work in a unique environment, with long work shifts and heavy demands on their schedules,” observes Alexandra Taussig, senior vice president, Fidelity Investments.

Next: Most nurses who don’t use workplace guidance would, under certain circumstances.

Increased Accessibility

Retirement guidance in the workplace may be underutilized, but the study also finds that 85% of those who don’t take advantage of it would be motivated to do so if they were given options that enhanced accessibility. For example, four in 10 (41%) of these nurses would be motivated to participate if their employer provided a class during work hours or had experts available to walk them through retirement plan options—either in person or on the phone.

Guidance leads to action, Fidelity finds, and adjusting workplace guidance to match employee needs can be a powerful way to help nurses better understand their financial plan and encourage them to get engaged. Fidelity finds that 35% of nurses take action after receiving guidance. Of those nurses, 69% increased their retirement savings contribution within 90 days of completing a guidance interaction by phone, in person or online.

Another benefit of guidance, the report notes, is that it can help nurses understand the consequences of taking a loan from their retirement savings account. This finding could be especially important, since Fidelity finds that 19% of nurses currently have an outstanding loan against their retirement savings account—up from 14% in 2012.

 Additional findings:

  • 50% of nurses worry about not having enough money to last through their retirement;
  • 67% say they could use more knowledge to help them make smart financial decisions; and
  • 68% are at least a little confused about navigating their financial path for the future.

The online survey was conducted by Kelton between October 6 and October 30 among 356 nurses (designations are: Registered Nurse, Advanced Registered Nurse, Licensed Practical Nurse, Nursing Management, Certified Registered Nurse, Certified  Nurse Anesthetist), ages 18 and older who are employed or retired and have a qualifying retirement plan (401(k), 401(a), 403(b), 457, 457 (b), or 457(f)). Fidelity and Kelton are not affiliated.

More information about the Financial Checkup on Nurse’s Retirement Readiness is on Fidelity’s website.  

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