Ask the Experts January 15, 2019

(b)lines Ask the Experts – Elimination of Suspension of Contributions After Hardship Withdrawal

Experts from Groom Law Group and Cammack Retirement Group answer questions concerning 403(b) plans and regulations.
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“I understand that the new proposed hardship regulations will require us to eliminate the six-month suspension of elective deferrals from all retirement plans that we sponsor following a hardship distribution. We’ve always hated this provision, and we are eager to eliminate it as soon as possible. How soon may we eliminate this provision?”

 

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Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

You are not alone, as many plan sponsors find this provision to be an administrative burden due to the fact that it requires a rather complicated interface between the plan sponsor and recordkeeper to properly administer. The good news is that the 6-month suspension provision can be eliminated fairly quickly, as soon as January 1, 2019. In fact, you can also elect for current suspensions to cease as of January 1, 2019, even though the related distributions occurred in 2018, when the old rules still apply.

For example, if you have a hardship distribution that was made on October 1, 2018, you can stop the suspension of elective deferrals on January 1, 2019, even though the six-month suspension period had yet to be completed. Alternatively, you can elect for the six-month suspension to continue into 2019 for such a distribution (until March 31, 2019, in this example), but since your desire is to eliminate the provision as soon as possible, rescinding all elective deferral suspensions on January 1, 2019, seems preferable.

It should also be noted that, unlike some other aspects of the proposed hardship regulations, if the regulations are finalized as written, the removal of the 6-month suspension of elective deferrals is MANDATORY, for hardship distributions made on or after January 1, 2020; plan sponsors cannot elect to retain this provision after that date.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

 

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Administration January 15, 2019

Effective Retirement Plan Communications Are Understandable and Accessible

A survey from the Empower Institute reveals retirement industry terms employees prefer, what they want communications look like, and how they prefer to receive them.

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Employees need to understand their retirement plan options so they can make the best decisions for their future, but the general public often misunderstands words that are commonly used by financial providers, employers and others in the retirement planning industry, Empower finds.

Though it may seem simplistic, a report from the Empower Institute offers examples of retirement plan terms that have different meanings in common use. For example, “rollover” is a trick one teaches his dog, and even “match” can bring to mind an athletic event or data service, or something used to light a fire with. “Such multiple meanings can cause confusion and create barriers to confident decision-making,” the report says.

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Empower Institute conducted three studies spanning 12 months to find out what individuals understand, and what they don’t, when it comes to financial and retirement-industry jargon. It found many commonly used industry terms don’t make sense to their intended audience. For example, 66% of respondents don’t understand what “rebalancing investments” means. A similar percentage—69%—is unclear on the meaning of “asset allocation.”

Millennials in particular found financial terms difficult to understand. For example, 63% of Millennial respondents found the term “plan participant” to be unclear compared with 44% of total respondents. Even the term “defined contribution retirement plan” is reported as unclear by three-fourths (76%) of respondents overall, and 88% of Millennials.

Some preferred terms emerged from the research. For example, 19% preferred the term “employee” to describe an employee with a workplace retirement savings plan, and another 19% preferred the term “participant.” For the amount an employer puts into the retirement account based on the amount of money an employee saves, 32% preferred the term “employer match,” while 21% preferred “company match.” For the percent of their paycheck they put into the retirement plan, 43% prefer the term “contribution rate,” while only 9% indicated they prefer the term “deferral rate.”

However, it’s not just the vocabulary used that can improve retirement plan communications for employees. The survey found participants perceive retirement plan communications as wordy and long, complex and confusing, generic, overwhelming and wasteful. They expressed a desire for communications that were concise, efficient, simple and easy to understand, relatable, personalized and engaging or attention-grabbing.

Empower Institute asked survey respondents how they prefer to receive messages about their retirement plan. Personal email topped their responses both when they were allowed to choose as many methods as they would like (51%) and when they had to select the most preferred method (26%). This was followed by a website visit (44% and 16%, respectively.) The least preferred communication methods were a postcard sent separately from an account statement, a social media page visit, text message by phone and live messaging online, each chosen as the preferred method for only 2% of employees polled.

“By providing clear information via the methods your employees prefer, you can help them be well-informed about their options and confident in their decisions,” the report says.

The full report, “Boosting the effectiveness of retirement plan communications,” is available here.

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