Benefits August 30, 2022

Plan Sponsors: Act Now to Link Student Loan Forgiveness and Retirement

Alight Solutions offers tactics for plan sponsors to boost workers’ 401(k) deferrals following the president’s student loan forgiveness announcement.

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Alight Solutions is urging plan sponsors to champion the idea that participants should allocate any additional income released from student loan forgiveness to their retirement accounts.

The Alight Solutions 2021 Employee Wellbeing Mindset Study found that 70% of workers under age 40 with student loan debt say that student loans have significantly or somewhat impacted their ability to save for the future. The report also showed that 23% of respondents say that their level of debt is ruining their quality of life.

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Illustrating the growth of a dollar deferred and invested to retirement is one way to tackle this. Considering the executive order from President Joe Biden, Alight took a fresh look at how income could affect retirement savings. 

Earlier this month, President Biden announced that the Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell-grant recipients.  

“The additional income that participants may be able to gain from the Student Loan Forgiveness Plan could help change this,” according to Alight. “For example, if an employee at age 25 started saving $100 a month, then by the age of 65 they would have almost an additional $300,000 in savings. Specifically, that would be $48,000 more money actually saved, but more importantly nearly an additional $250,000 in just interest income.”

Plan sponsors have several tactics available to help provide workers with a clear understanding for how to best allocate the additional funds and connect student loan cancellation with retirement savings. And the federal student loan forgiveness program presents a window for plan sponsors to urge workers with student loan debt to boost their retirement plan contributions, says Virginia Maguire, vice president of wealth solutions and strategy at Alight Solutions.

“While long-term savings planning is seemingly financial in nature, it really spans across an employees’ broader well-being,” she says. “For instance, our studies show that 43% of employees reduced or stopped saving for the future (for retirement or other goals) in order to pay for health care costs.”

Alight favors plan sponsors use tactics such as personalized engagement and messaging to urge plan participants to act to increase their contributions.

Employers can tie 401(k) and health savings account messages via applications, online experiences and email specifically to loan forgiveness, with examples—like above— that illustrate the time value of money, through appropriate demographic channels used by them and images resonant with a younger and diverse cohort.

Another technique for plan sponsors to engage users is to enable access to unbiased outside of the firm advisers and experts to help workers.   

“Having live trained experts available to discuss different savings opportunities across all their benefits (401(k), [health savings account, health care, etc) who are acting solely in the best interest of that employee is incredibly valuable,” adds Maguire.

Another tactic for plan sponsors to assist is to offer paycheck savings planners and financial well-being tools: “Provide digital tools that span multiple benefits/savings vehicles that help employees deal with their entire paycheck and their entire benefit lineup,” says Maguire.  

Employers are looking to help workers with financial stress and options to increase well-being at the workplace are desired by workers and plan sponsors, she adds.  

“With employers’ continued desire to drive optimal well-being support and utilization, they may be best positioned to provide employees who qualify for the Student Loan Forgiveness Plan with personalized guidance around how to best allocate these additional dollars toward long-term savings,” she says.

While many retirement plan participants are saddled by student loan debt that is preventing their saving and investing for retirement, many are comfortable sharing personal information on their financial situation, adds Maguire.   

“The good news is that between 70-80% of Gen Z and Millennials report they are comfortable with sharing personal financial information with employers to gain personalized guidance via messaging, tools, and live advisers,” she says.

Compliance August 30, 2022

Lawsuit Cites 401(k) Plan Omission of Target-Date Funds Among Problems

The target of a new Employee Retirement Income Security Act case is a plan sponsor with more than 20,000 participants that ‘periodically’ reviewed the plan’s investment options to ensure they were suitable, according to a complaint.

 

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Plaintiffs in a lawsuit seeking class action certification have claimed the plan sponsor breached fiduciary duties to 401(k) plan participants.

Former employees have filed a lawsuit seeking class action certification against TTEC Services Corporation, the employee benefits committee and named 401(k) plan fiduciaries under the Employee Retirement Income Security Act.

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The plaintiffs’ claim that defendants “flagrantly” breached fiduciary duties owed to the plan and plan participants by mismanaging the plan’s recordkeeping fees and investment options, “causing millions of dollars in damages to plan participants,” the complaint states.

Plaintiffs allege that defendants failed to prudently monitor, regularly benchmark and prudently negotiate the plan’s recordkeeping fees, among other claims.

It is alleged by plaintiffs that the plan allowed a service provider, T. Rowe Price—since 2019 the plan recordkeeper—to include and retain proprietary investments in the investment menu that “historically and subsequently underperformed the replaced funds and/or were more expensive investments; failed to prudently consider alternatives to mutual funds in the plan, despite the alternatives’ lower fees; [and] admitted to have only ‘periodically’ reviewed the plan’s investment options to ensure they were suitable for plan participants—in dereliction of their duty to continually monitor each investment offering—causing plan participants to incur excessive investment fees,” according to the complaint.

The company vowed to “vigorously” defend against lawsuit claims that are “without merit,” says a TTEC spokesperson.  

“Since the beginning of 2020, hundreds of ERISA class action lawsuits alleging similar claims have been filed against employers across all industries that sponsor employee benefit plans like 401(k) plans,” the spokesperson says. “The fiduciaries who manage the plan take their responsibilities seriously and regularly review and benchmark the plan’s investments and fees/expenses, relying on experienced advisors and subject matter experts.”

In addition, the plaintiffs claim in the complaint that the TTEC 401(k) plan was administered during the class period—August 25, 2016, to the present—without “crucial” protocol, namely, an investment policy statement, and did not include target-date funds in the plan’s investment menu until “late” 2019, when five Vanguard options were added.   

“Plaintiffs, accordingly, assert claims against defendants for breach of the fiduciary duties of prudence (Count One) and failure to monitor fiduciaries (Count Two),” the complaint states.

According to the court filing, plan assets totaled approximately $200 million as of January 1, 2020, and the average number of plan participants between 2016 and 2021 was approximately 26,000. Prior to T. Rowe Price, Merrill Lynch was the plan’s recordkeeper from 2012 through 2019, according to the court filing. 

“The recordkeeping fees defendants allowed Merrill Lynch to charge to plan participants were higher than comparably-sized defined contribution plans during the class period, showing the defendants failed to prudently monitor and benchmark these fees, causing the plan to overpay millions of dollars for recordkeeping services,” the complaint states. “Before 2016, a prudent fiduciary of a plan with a similar number of participants could have negotiated comparable recordkeeping services of similar or superior quality for $30 to $35 per participant, or lower.”

The complaint notes “that a [subsequent] recordkeeper, T. Rowe Price, was willing to charge lower recordkeeping fees in 2020 for comparable services demonstrates the plan fiduciaries caused the plan to overpay for recordkeeping fees. And … when changing recordkeepers from Merrill Lynch to T. Rowe Price, defendants failed to prudently negotiate the recordkeeping fees, causing the plan to continue to pay above market-rate for these services.”

A TTEC company webpage identifies global hubs across locations, in six continents, 85+ global locations and employing 60,000 workers. TTEC describes itself as a global customer technology and services company, “focused on the design, implementation, and delivery of customer service platforms in various industries,” according to the complaint.

A request for comment to TTEC on the lawsuit was not returned.

The case is plaintiffs Elijah Carimbocas, Linda Dlhopolsky, and Morgan Grant (“Plaintiffs”), by and through their attorneys, on behalf of the TTEC 401(k) Profit Sharing Plan (f/k/a TeleTech 401(k) Profit Sharing Plan) (the “Plan”), V. TTEC Services Corporation, TTEC Services Corporation Employee Benefits Committee, Edward Baldwin, K. Todd Baxter, Paul Miller, Regina Paolillo, Emily Pastorius, John And Jane Does 1-20, Defendants. It is Case 1:22-cv-02188-STV and before the United States District Court for the District of Colorado.

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