Deals and People August 12, 2020

Principal-Wells Fargo Integration on Track for 2021 Completion

Remaining clients still on the Wells Fargo platform can expect to be transferred to the Principal platform by the end of next year.

Reported by

Renee Schaaf, president of retirement and income solutions at Principal Financial Group, recently jumped on the phone with PLANSPONSOR for a discussion of her firm’s ongoing integration of the Wells Fargo Institutional Retirement and Trust business.

On several occasions, Schaaf has offered her take on the integration progress since the deal was cut in July 2019, but this was the first time she offered an update about how the coronavirus pandemic is impacting the work of bringing together two large and sophisticated financial services enterprises.

Get more!  Sign up for PLANSPONSOR newsletters.

Schaaf says the combined organization has some ways to go, but it is already delivering new and enhanced capabilities to Principal and Wells Fargo customers, including a digital plan onboarding experience, the Principal Complete Pension Solution, the Principal Milestones financial wellness program and more.

“Despite COVID-19, our integration team has continued to make important progress in bringing these two businesses together,” Schaaf says. “We have stayed dedicated to the integration without losing focus on supporting current customer and financial professional needs, particularly as they’re navigating rapidly evolving market conditions impacting retirement plans, investments and businesses as a result of the pandemic.”

According to Schaaf, the goal is to complete the integration sometime during 2021. Reaching this point will not only require further operational and technology changes but also updates to the combined company’s physical footprint. The company plans to retain locations in Charlotte, North Carolina; Minneapolis/Roseville, Minnesota; Waco, Texas; Winston-Salem, North Carolina; and Manila, Philippines. Last month, Principal secured an office space in downtown Minneapolis that will welcome employees in 2021, Schaaf says. 

At this point, many Wells Fargo Institutional Retirement and Trust employees have received job offers to transition employment to Principal effective in 2021. Principal has also appointed a new sales leadership team and is updating its adviser/consultant service model. Schaaf says the company intends to “meet the needs of all customer segments with comprehensive retirement, trust and custody, executive benefits and discretionary asset management offerings.”

Schaaf says a key part of the firm’s strategy moving forward will be accelerated innovation in its retirement recordkeeping technology platform. As a part of these efforts, she says, the company continues to expand the Principal Total Retirement Suite with more advanced retirement plan management capabilities, financial wellness tools and “other resources that help people to save enough and have enough in retirement.”

To this end, Principal will start transitioning participants in October through Principal Real Start. Schaaf says Real Start represents a simplified and highly personalized onboarding experience.

“The process aims to be seamless for plan sponsors and participants as Principal manages all transition logistics,” she says. “We could have made the decision to run parallel systems, but, ultimately, we didn’t think that would serve anyone well. We took time to thoughtfully review and plan the transition to make sure it will be seamless and easy for clients. What has really resonated with the Wells Fargo Institutional Retirement and Trust client base is that we are going to be bringing over the very same service teams that handle them today. This is especially important in the eyes of the large and complex plans in the client base.”

Asked to put the ongoing Principal-Wells Fargo integration into the context of broader recordkeeping industry trends, Schaaf says there is no reason to believe that consolidation of this type will slow down.

“Pressure to consolidate and build scale has been around for years and will no doubt remain an important trend moving forward,” she says. “This is a challenging industry, but when we look forward at the path we want to follow, we know that recordkeepers that can serve defined contribution plans incredibly well will continue to thrive. We also see big opportunities to blend together different types of retirement programs, from defined benefit pensions to non-qualified deferred compensation plans to employee stock ownership plans. We see a natural runway and an opportunity to do more across these spaces—to focus on total retirement solutions while also bringing new innovations to the marketplace.”

Benefits August 11, 2020

Small Business Employers are Freezing Cash Balance Plans

Amid the pandemic, many are pausing their cash balance plans out of concern that there could be insufficient cash on hand to make required contributions.

Reported by

Before the outbreak of the coronavirus pandemic, small business were increasingly adopting cash balance plans.

Now, many are frozen or paused, say industry experts. At Kravitz Financial, about a quarter of the company’s small business clients froze their cash balance plans, and of that number, 10% had started terminating them.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

“During this climate, most will freeze the plan which reduces the funding requirements,” says Daniel Kravitz, president. “When the economy picks up, oftentimes they’ll unfreeze.”

Cash balance plans are celebrated by many across the industry as highly effective retirement plans for both employer and employee. Aside from its high contribution limits and tax-deferment potential, when employees receive their monthly reports, benefits are explained in the form of a lump sum account balance, making it easier for the participants to understand.

“More employers are finding transparency important,” says Alex Kuhel, a Chicago-based partner at October Three.

Adam Bergman, founder of IRA Financial, explains how many of his clients paused their cash balance plans out of concern that there would be insufficient cash to make required contributions. Bergman notes that because most employees hadn’t yet worked 1,000 hours during 2020 when their plans were frozen—as most froze in March or shortly after—employers had greater flexibility to enact a freeze. In many cases with defined benefit (DB) plans, participants won’t accrue their benefit until they work 1,000 hours. Because of this, employers may freeze their plans, if needed, before the benefit is ensured. 

Bergman says it is important to point out that the window for freezing cash balance plans has pretty much closed, because by this point in the year employees have likely exceeded 1,000 working hours.

“Since its August now, the 1,000 hours requirement has probably been surpassed by a lot of business owners, so that may not be an option,” he says. “Hopefully, their business is rebounding, and they’ll have the cash they need to make contributions.”

Funding requirements during the current economic environment have been altered slightly thanks to the Coronavirus Aid, Relief and Economic Security (CARES) Act, says Kuhel. Normally, if an employer is following a calendar tax year, they can adopt and fund a DB or cash balance plan by September 15, 2021, in order to receive a 2020 deduction. Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, the 2020 deadlines have been extended to January 1, 2021. Additionally, employers will have until January 1, 2021, to complete any minimum required contributions originally due in 2020.  

Small business employers who received a Paycheck Protection Program (PPP) loan may have been able to use these funds for their cash balance plan. The Department of Treasury issued guidance listing the repayment of retirement benefits as an area to allocate loan funds to. However, Kuhel recommends checking in with a benefits attorney prior to doing so.

“It is listed under payroll in the treasury guidance, but we would always encourage an employer to seek counsel to just be safer,” he adds.

Kravitz adds that employers can use the loan to fund required contributions for employees, but not larger contributions that fund the business owner’s benefit. Yet, both he and Bergman reference little utilization of PPP funds due to restricted time periods and little guidance on PPP usage specifically for cash balance plans.

«