Benefits November 4, 2020

Best of PSNC 2020: The Future of Student Loan Benefits and What to Expect in 2021

Panelists said encouraging better financial wellness can go a long way to helping workers manage their student loans.

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During the first day of the Best of PSNC (PLANSPONSOR National Conference), Will Sealy, chief executive officer and co-founder of Summer, an organization that helps borrowers with their student loans, said there are 45 million student loan borrowers in the U.S., most of whom have federal loans, the repayment of which was put on hold this year due to the coronavirus pandemic. “But these payments are going to be due in January, averaging $400 a month, and many people may not be able to make these payments,” Sealy said.

There is another program to help borrowers, an income-driven repayment program that lowers federal student loan monthly payments to just 10% of a person’s income, Sealy noted. “Half of all federal loan borrowers can qualify for this program,” he said. “Savings range from $3,000 to $4,000 a year. That is a phenomenal amount of money, representing an income gain for some people of as much as 10% to 20%. But the challenge is that most people don’t know about this program. Only 8 million people have enrolled in it.”

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The Coronavirus Aid, Relief and Economic Security (CARES) Act has a provision that allows employers to contribute up to $5,250 toward a worker’s student loan debt and receive a tax credit similar to the one they get for making a match to a defined contribution (DC) plan, Sealy noted. However, it is set to expire at the end of the year. “There is immense interest in trying to preserve this through proper legislation that will give it longevity, rather than leave it as a stop-gap solution, including a bipartisan bill that came out just a few days ago,” he said.

Sealy also noted that there are a lot of Democratic politicians who have floated the idea of forgiving student loan debt entirely, as well as making state colleges tuition free. “The former would cost upwards of $1.6 trillion and the latter would require a similar amount over 10 years,” Sealy said. He notes that while these proposals are compelling to some voters they are unlikely to pass through Congress due to their overall cost.

Lisa Ledoux, senior director of benefits at Asurion, says that her company has launched a financial wellness program that includes Summer to help its workers with student loans save approximately $300 a month by helping them enroll in a series of federal and state benefits programs. “We have such a huge workforce that a student loan contribution program would cost us several million dollars,” Ledoux said. “Instead, we have opted to help them with their take-home pay and cash flow.”

Jessica Ruggles, director of the financial wellness outcomes practice at Prudential Financial, agreed that financial wellness programs can go a long way to helping people better manage their student loan debt. “They are an opportunity for employers looking to enhance their benefits and to be more paternalistic, while being cost-neutral,” Ruggles said. “Companies that participate in our financial wellness program see an increase of 7 percentage points in their retirement plan, an increase of 8 percentage points in their digital engagement and a 28% improvement in job retention. With these figures in hand, now you can speak the same language as your CFO [chief financial officer].”

Kerry Van Voris, chief people officer at Oscar Health, said whatever types of benefits an employer offers, they need to communicate the upside of each benefit in all different forms. Besides email and the internet, it is important to get senior management in front of workers to talk about the benefits, Van Voris said.

Ruggles said it is also important to survey workers each year to evaluate their financial situations and determine what kinds of benefits could best serve them.

Compliance November 4, 2020

Best of PSNC 2020: Legislative and Regulatory Update

Speakers discussed the SECURE Act, the CARES Act and the DOL’s guidance on ESG during the first day of the Best of PLANSPONSOR National Conference

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During the opening day of the Best of PSNC (PLANSPONSOR National Conference), retirement plan industry experts discussed the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

Benjamin Grosz, a partner with Ivins, Phillips & Barker, Chartered, said with respect to the CARES Act and the SECURE Act, “critical amendments to plan documents do not need to be adopted this year, but by the end of 2022. For governmental plans, the deadline is extended an extra two years.”

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Since these deadlines are so far out in the future, and none of his plan sponsor clients are adopting these amendments this year, Grosz said it is important for sponsors to “remember your actions and have documentation of the details of what you did.”

If sponsors permitted participants to take out COVID-19-related loans this year, they need to be aware that starting on January 1, those participants will be responsible for repaying those loans, said Jodi Epstein, a partner with Ivins, Phillips & Barker, Chartered. That means it is imperative for those sponsors to ensure their recordkeepers are able to process those repayments.

Grosz agreed that plan sponsors should educate themselves about the processes their recordkeepers have in place to handle those COVID-19-related loan repayments, “so that they can guide their plan participants in the right direction.”

Epstein also noted that the SECURE Act permits participants to take qualified birth or adoption distributions (QBOADs) in 2020 of up to $5,000 per child without having to pay the 10% early withdrawal penalty.

That law also laid out guidance on pooled employer plans (PEPs), which she said could be a great, low-cost and administratively simple way for smaller employers to offer retirement plans. Epstein said she expects PEPs to gain more attention in 2021 and beyond.

Grosz said his clients have been asking him about PEPs, but he is advising those that already have a retirement plan and are satisfied with it to stick with that plan. Meanwhile, Grosz is advising those sponsors without a plan that are curious about PEPs to wait to see how successful PEPs turn out to be.

If a participant took out a distribution that they characterized as a QBOAD or coronavirus-related distribution (CRD) to the IRS but the plan did not specify that either was permissible, the sponsor is not responsible for what that participant tells the IRS, Epstein said. “It is up to the participant to decide what they are doing when they file their tax return,” she said. “It is not the plan sponsor’s problem.”

Grosz said he is advising his clients that have neither of these provisions to refrain from advising their participants on characterizing distributions to the IRS. “For plan sponsors, this is another example of not giving plan participants advice on how this works, because that will just raise their risks,” he said. “I expect more guidance to come from the agencies on this.”

As for the requirement in the SECURE Act that recordkeepers, at least once a year, express what a participant’s account would translate into as monthly retirement income starting at age 67—as a single life annuity (SLA) and a joint and survivor annuity (JSA)—Grosz says this is an important development that will go into effect next September.

One key problem with this requirement, however, Epstein said, is that the SECURE Act says the recordkeeper should only work with the current balance in the account, not the projected balance at age 67. So if a person is only 20 years old and has just $2,000 in their account, the projection is basically meaningless, she said.

She noted that many recordkeepers are advancing this guidance to project future monthly income, based on a person’s deferral rates and future years in the workforce, so it is incumbent on sponsors to ask their recordkeepers about their calculations to ensure they are comfortable with them. “These are complicated issues to explain to plan participants, and there are a lot of assumptions that go into these calculations,” Epstein said. “Sponsors have a fiduciary obligation to communicate features of their plan and participants’ account accurately. Even if the calculation is coming from the recordkeeper, it will have the plan sponsor’s logo on it. I am cautioning plan sponsors to spend a little time on this and not to assume that the recordkeepers’ drafts on this will be right.”

Grosz noted that one of the many pieces of guidance to come out from the Department of Labor (DOL) this year dealt with offering private equity investments in retirement plans. He said it is important for sponsors to understand that this is only an option available to them—one that many like for diversification purposes—but that it is not a requirement.

Both Grosz and Epstein said sponsors should have similar takeaways on the DOL’s guidance on offering environmental, social and governance (ESG) investments in retirement plans. Grosz said it does not make sense to make ESG investments a qualified default investment alternative (QDIA) option, but Epstein said ESG options in an investment lineup, particularly as part of a target-date fund (TDF)’s glide path, are likely to become more prevalent.

As far as lawsuits against plan sponsors are concerned, Grosz says these cases continue to proliferate and move down market and that, for these reasons, plan sponsors need to pay close attention to these cases and document all the decisions they make with respect to their plans.

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