Investing September 15, 2022

Wilmington Trust Launches CIT Onboarding Tool

The tool for employer-sponsored plans seeks ‘democratization’ of the use of collective investment trusts. 

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Wilmington Trust has launched BoardingPass, an application designed to digitize and streamline the onboarding of collective investment trusts for employer-sponsored retirement plans.

CITs are an alternative to mutual funds for employer-sponsored retirement plan investments.   

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“Especially after the height of the COVID-19 pandemic, we realized that paper-only solutions would no longer work for most businesses operating in a digital or hybrid environment,” says Rob Barnett, head of Wilmington Trust retirement distribution and product leader for CIT business. “Typical CIT onboarding processes can be time-consuming, so we developed a single digital tool in which all documents and information are centrally located, thereby streamlining communication.”

Barnett says BoardingPass was launched to increase the availability and use of CITs for employer-sponsored retirement plans by removing paperwork and implementing a digital onboarding process.

The paper-based onboarding process is onerous for employer-sponsored plans wanting to use CITs, explains Barnett, because a plan’s eligibility to invest in CITs must be confirmed through a retirement plan participation agreement.

“To invest in a CIT, a plan sponsor or its delegated fiduciary has to complete a participation agreement that really represents and warrants that they’re eligible to invest in this tax-qualified vehicle,” he says. “That has left a lot of people to believe that the onboarding process for CITs must stay paper-based, and while we all work continually to try to make the paper-based process better, it really doesn’t allow for the democratization of the use of CITs. BoardingPass brings to pass the democratization of the retirement plan onboarding process, as well as adding CITs as plan options.”

CITs and Mutual Funds

A CIT is a bank-administered trust offered by banks and trust companies for retirement plans, and unlike mutual funds are not available to the public. Like mutual funds, CITs provide several investment options for retirement plan participants, across a basket of assets. CITs are pooled-account investments that hold commingled assets that must meet certain requirements.

Unlike mutual funds, which are regulated by the Securities and Exchange Commission, CITs are overseen by the Department of the Treasury Office of the Comptroller of the Currency. They can be less expensive to administer than mutual funds for plan sponsors, because while CITs are plan asset vehicles under the Employee Retirement Income Security Act, investments are not subject to the prospectus and financial reporting requirements and expense rules of the Investment Company Act of 1940.

“CITs provide a vehicle with lower fees to ensure low-cost alpha for investors,” Barnett says. “Advisers can work with plan sponsors to detail the benefits of CITs and identify the cost structure differences between CITs and mutual funds.”

Plan sponsors and advisers using CITs have attendant fiduciary duties to participants, as with mutual funds.

Unlike 401(k), 401(a) and 457(b) plans, 403(b) plans are barred from using CITs. A legislative package working its way through Congress known as SECURE 2.0, as it would build on the 2019 Setting Every Community Up for Retirement Enhancement—aka SECURE—Act, proposes to allow 403(b) plans to invest in CITs.

All Aboard

A press release announcing the app’s launch says BoardingPass users will likely reduce the time spent on onboarding because the app serves as a central hub for all plan information. Rather than requiring an employer-sponsored plan to manage reams of paperwork, which can lead to errors and takes an average of one to five business days to submit, users of the web-based platform can shorten the timeline by up to 80%, the release claims.

“Previously, the process was stagnant, intimidating and far less accessible due to the onerous amount of paperwork involved,” Barnett says.

Plan adviser users of the tool can automatically pull key data for the plan they are advising into the system from the data contained in the IRS Form 5500 database; a Form 5500 is the annual report filed by employer-sponsored plans with the Department of Labor. The tool prepopulates the correct form fields with information on a plan’s financial condition, investments and operation. Plan sponsors may be able to gain the benefit of real-time information-sharing and a digital connection to their critical service provider partners, according to the press release. 

Plan sponsors “can sort and monitor all fund requests pending approval and sort by plan name, recordkeeper or even adviser name,” says the release. “They can view all fund requests that need action (e.g., missing signature) and quickly address them.”

Barnett adds, “We have learned that the trend among all users, including consumers and businesses, is for a more user-friendly and less intimidating process when it comes to signing documents. As a result, the digitization of the plan onboarding process was necessary. This is the future of retirement planning.”

Data and Research September 14, 2022

Research Shows Retirement Confidence Gap Between Married and Unmarried Women

According to EBRI data, there is a stark gap in retirement preparation between married and unmarried women in the U.S.

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New research from the Employee Benefit Research Institute suggests that women would benefit from retirement advice that considers their marital status.

The study from EBRI shows that unmarried women are less confident in their ability to retire securely than their married counterparts.

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EBRI separated 758 female workers and 545 female retirees from a larger online sample of 2,677 Americans age 25 and up. The study weighted the sample by age, sex, household income and race using census data to make it more representative of the national population.

Among never-married women workers, 51% said they were not confident in their ability to live comfortably through retirement, versus 22% of married women and 55% of divorced women.

This insecurity comes from a variety of sources. For one, 27% of married women reported having $25,000 or less in total assets, whereas 56% of never-married and 58% of divorced women did.

Accordingly, unmarried women were more likely to say they were prioritizing shorter-term expenses over their retirement: 41% of never-married and divorced women said that saving for retirement is not a priority relative to current needs, compared with 27% of married women.

Unmarried women were also more likely to say they were prioritizing buying a home or starting a business over saving for retirement. This could suggest that unmarried women are looking for sources of independent income and wealth as a priority, or even as a substitute for retirement savings, though the study does not expand on this.

Another explanation for unmarried women’s relative retirement insecurity is that they are less likely to know who to go to for retirement advice, as 45% of never-married women said they do not know where to go for advice, versus 36% of divorced women and 27% of married women.

The study acknowledges that the responses of married women could reflect “collective knowledge,” meaning that though married respondents wouldn’t know where to go for advice themselves, they believe that their partner would.

Though the study weighted for a number of demographic factors, it did not include weighting for educational attainment. This is despite findings in the field of survey research that those without a high school degree are chronically undersampled, and those with a college degree are consistently oversampled. This is in part due to the fact that higher-educated people are more likely to have a cell phone, landline and access to the internet, and are therefore more likely to be sampled by survey researchers.

Research from Pew shows that better-educated adults are also more likely to be married, and as such the gap in retirement confidence between unmarried and married women may be due in part to married women tending to be more educated. In other words, the gap may be overstated since it does not weight for education, but it cannot be said for sure without further research.

The EBRI study also notes that unmarried women were more likely to say that debt was an obstacle to saving for retirement than married women, though it does not specify the sources of the debt. Among never-married women, 40% disagreed that debt was negatively affecting their ability to save for retirement, compared with 56% of married women.

Past research from Prudential’s Financial Pulse Survey shows that women tend to have less confidence in their retirement than men, and are less likely to have employer-sponsored retirement accounts. EBRI’s research shows that this insight can be further refined based on marital status, and can further inform the retirement investment advice provided to women workers and retirees.

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