Benefits June 25, 2021

PSNC 2021: Helping Participants ‘Reset’

How plan sponsors can get participants back into a saving mode after a rough year.

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As workforces shift back into the office, and the U.S. heads into a recovery period, plan sponsors are assessing the impact of the coronavirus pandemic on their participants. The first session on the last day of the 2021 Virtual PLANSPONSOR National Conference (PSNC) included discussions on how sponsors are helping their participants get back on track with saving for retirement, as well as rethinking how they could better aid in the process.

The pandemic resulted in a wave of financial wellness setbacks. Some employers reduced company 401(k) matches, and some participants took loans or distributions from their retirement plan accounts after passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act a year ago in March. According to a study from Fidelity, 6.3% of participants in that company’s plans reported taking a CARES Act distribution, with the average amount being $20,000. The distributions were larger in the manufacturing and health care industries, Fidelity noted.

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When asked why they decided to take a loan against their retirement account, 60% said they preferred to borrow from themselves, the study reported. “People are really hopeful going forward, and they were thoughtful when deciding on taking a withdrawal or loan,” said Laura Pinkall, vice president of Fidelity Investments – Workplace Consulting Services, during the panel.

Regardless, “all of these things could have affected how much [participants] have in their retirement account,” said Abigail J.C. Russell, vice president and financial adviser at CAPTRUST.

While CARES Act distributions were low and not as damaging as had been predicted, plan sponsors are still evaluating how they can promote saving post-pandemic. If an employer is financially able to do so, one of the top means is to reinstate the company 401(k) match, Russell said during the panel. While the matching rate does not need to be as high as it was pre-pandemic, “at least something would help,” she said.

Russell also stressed the value of automatic features when reintroducing company matches to participants—especially to employees who had thus far lacked any engagement with the plan. Increasing the default deferral rate from 3% to 5% or 6% can be enough to bring participants up to speed, she said.

One feature that increased in demand throughout the pandemic was the emergency savings vehicle. Robert Massa, managing director at Qualified Plan Advisors, observed that 38% of American workers do not have access to emergency savings, with many unable to afford a $1,000 emergency. “To add that after-tax resource is going to make participants more comfortable in the future,” he said.

The concept of automatic emergency savings, which allows participants to deduct after-tax funds from their paycheck and save them in an account without penalty, was discussed by the panel. While certain employers are taking steps to implement automatic emergency savings, Pinkall said, any focus on rainy-day savings is beneficial to employers and employees alike. “We do have to do better about educating and preparing for emergencies,” she said.

Faleasha Carter, director of benefits at Howard University, which was a winner in this year’s PLANSPONSOR Plan Sponsor of the Year awards, pointed out that what constitutes an emergency and how much a person needs to have saved varies with the individual. “What an emergency is can be relative,” she said.

At Howard University, Carter and her team determine what a participant should squirrel away by the person’s fixed income and fixed expenses. “We need to approach this according to what do you need to do to have savings; where are you when it comes to your family life; when do you want to retire; and when do you start that five-, 10-, 15-year planning process,” she continued.

Emergency savings aren’t just needed because participants experienced a pandemic this year and last—they will always be vital to have, because an emergency can happen at any time. “For some, an emergency is buying a new backpack for their child,” Carter said. “This is nothing new—the pandemic was just the reason for emergency savings this year, but next year it’s going to be something else.”

Among other points to reset are investment strategies and allocations, and especially if the investment lineup is overloaded with mutual funds. Massa argued how multiple large-cap funds are not necessary to have on 401(k) menus. “If you’re in a situation where you have overloaded your menu, it’s simply too complicated for participants,” he said.

Even if one or two participants ask for a specific fund, the sponsor must prioritize its overall participant population, Massa said. “We’re trying to put in a program that works for the broadest group of people; make sure you have a wide range of investments.”

Russell agreed, adding that most of her clients offer around 16 or 17 funds in their lineup, the exact ones based on how savvy participants as investors. The sweet spot is where you don’t scare away participants but also engage your sophisticated employees, she said.

At Howard University, the plan went through an otherwise inspired reset, prior to the pandemic, going from three recordkeepers to one. As a result, the plan reduced its investment mutual funds from 150 to just 25. “It’s easier to streamline those 25 funds, teach the participants, and help them understand what those options are and decide what they’re comfortable with,” Carter said. “Throughout the pandemic, if someone wanted to go online to change their asset allocation, it was easy for them because they had had access to that education prior, and they could connect with someone online and ask for more information.”

Another hot topic throughout the past 15 months has been cybersecurity and the importance of mitigating cyberattacks. “Cybersecurity is top of mind, especially in this virtual world,” said Pinkall. “The levels of phishing and types of breaches to get [personal] information has really increased throughout the pandemic.” She named two-factor authentication and MyVoice, a platform that recognizes a participant’s voice so only that individual can access his account, as two key features for preventing cyberhacks.

Carter touched on the importance of limiting the number of vendors associated with a plan. “We provide streamlined education from one vendor so everyone knows where the [education] source is coming from,” she said.

All panelists cited participants as the best protectors of their own accounts. Aside from conducting webinar and training, discussing steps that participants should take to mitigate attacks, the experts agreed that setting up an online account is the first line of defense participants can take, along with checking their account on a monthly basis. “A participant will see before anyone else if there’s a change in their account they didn’t make,” said Russell.

“If your participant doesn’t set up an account, that in itself can be a risk to their account,” Massa said.

Administration June 24, 2021

PSNC 2021: Plan Design Elements to Improve Outcomes

Now that the worst of the coronavirus pandemic has lifted and work has largely returned to normalcy, so too has retirement plan sponsors’ commitment to finessing plan design.

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Kicking off an information-packed week during this year’s virtual PLANSPONSOR National Conference (PSNC), the “Plan Design Elements to Improve Outcomes” session revealed that, post-COVID-19, sponsors have been recommitting to running robust plans.

“Plan design elements are critical to improve outcomes,” said Joshua Ulmer, executive director, Graystone Consulting, and moderator of the panel. He added that every so often, and at least once a year, “plan sponsors should evaluate their plan’s design to make sure the plan meets its goals and is attractive to attract, retain and retire talent.”

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Ulmer reminded the audience of some of the devastation that people have experienced from the pandemic. He said sponsors should not just think about its death toll worldwide, but how it caused millions of Americans to lose their jobs and join long lines at food banks. This has resulted in some people depleting their retirement savings, and others not being able to make contributions, Ulmer continued.

A Different Retirement for Everyone

Asked what critical plan design decisions StoneStreet Renaissance has learned throughout the COVID-19 pandemic, founder Barbara Delaney said StoneStreet was already re-evaluating its approach to plan design before the pandemic hit in early 2020, particularly to make it easier for participants to access their 401(k) funds throughout their working careers.

“We were looking at 401(k) plan design in very different ways,” Delaney said.

Then, during the pandemic, StoneStreet advisers began paying particular attention to how COVID-19 was morphing people’s future retirement plans. Relying on the findings of Franklin Templeton’s “Voice of the American Worker Study,” which itself relied on findings from the Harris Poll, Delaney and her partners discovered some fascinating developments, validating what they already knew to probably be true, she said, particularly with respect to “the way Americans view retirement and how that is changing. Eighty-eight percent said retirement now looks different for everyone. One size does not fit all.”

Of particular concern: The pandemic revealed that 80% of participants don’t have an emergency savings plan. StoneStreet is now recommending that all of its plan sponsor clients “use an after-tax bucket as a means” to help workers without emergency savings to build it up, she said.

Further findings, Delaney continued, also revealed a big problem: In the absence of emergency savings, many participants, through the guise of the coronavirus-related distributions (CRDs), were taking large sums of cash out of their retirement savings. That pointed to “a big void of financial advice” which StoneStreet is now aggressively filling with the endorsement of managed accounts. For Stone Street’s plan sponsor clients, “these are taking a much different role going forward,” she added.

Akin Gump Strauss Hauer & Feld LLP—winner of the PLANSPONSOR of the Year Corporate 401(k) >$300MM-$1B category—made a conscious decision, as the pandemic began to lift, to return to its advocacy for automatic features, said Jessica Chicorelli, director of financial benefits at the law practice.

While Akin Gump has been advocating for auto-enrollment and auto-escalation in its own retirement plan since 2015, the pandemic and the lack of emergency savings made these features seem all the more critical to the retirement committee, Chicorelli said. The law firm not only recommitted to the importance of these two features, but it also recognized the value of reenrollments for longer-tenured employees, as well as holding the company’s match and profit sharing steady, Chicorelli indicated.

“We want to get people back on track with their retirement plan,” she said.

Health and Wealth

With COVID-19 being such a threat to so many around the world, Akin Gump also took up the mantle of helping its employees with both health and wealth, Chicorelli continued.

Yet another lasting change to come out of the pandemic is that “customers, prospects and consultants are now looking at financial wellness holistically,” said Angela Winingham, associate vice president, market development and participant adoption at MetLife, where she advocates for the use of annuities for retirement plans.

“We also learned about the importance of providing certainty in times of uncertainty, and steady income,” she said. “The outcome of a qualified plan is income and preserving assets at retirement. A recent MetLife survey found that 78% of plan sponsors are re-evaluating plan design.”

Asset managers and recordkeepers were also very busy in the early days of the pandemic helping plan sponsors make fast decisions in light of the Coronavirus Aid, Relief and Economic Security (CARES) Act, said Nathan Voris, senior managing director, business strategy at Schwab Retirement Plan Services. This put call center reps to the test, as people had “so many varied experiences” to the pandemic, he said.

Of course, some people were able to maintain personal computer-based, professional services jobs from home, while many of those in the hotel, travel and restaurant industries lost work.

As Winingham pointed out, a MetLife survey found that 20% of Baby Boomers decided to delay retirement during the days of the pandemic, while 10% decided to retire early, coming to the conclusion that “life is just too short.”

The panelists said that those varied experiences mean participants will be looking for different things from their retirement plans, as well as more personalized approaches that adapt to their needs.

Voris added: “The same personalization that folks experience outside of our space [i.e., Amazon, Google analytics], that has to come to our world” of retirement planning.

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