DC Plan Sponsors Want Retirees/Terminated Employees to Remain in Their Plans

More than 60% of employers want to keep retirees in their plan, and 33% prefer that terminated employees keep their balances in the plan, Alight Solutions found.

Alight’s “2019 Top Topics in Retirement and Financial Wellbeing: Building on the Past, Working Toward the Future,” looks at how retirement plans have changed since it first conducted its survey of employers 10 years ago, as well as retirement plan sponsors’ top goals for their plans in 2019.

The top three goals for 2019 include expanding financial wellbeing programs, keeping retirees’ assets in the plan and locating missing participants. Sixty-one percent say the threat of lawsuits prevents them from being more innovative with their defined contribution (DC) plan.

Notably, more than 60% of employers want to keep retirees in their plan, and they are looking to change their targeted communications to inspire action. Thirty-three percent of employers prefer that terminated employees keep their balances in the plan. Since 2017, 18% of employers have implemented a voluntary early retirement/separation program.

To address an increase in retirement-eligible participants, 26% of employers plan to provide retirement planning education to near-retirees. Twenty-four percent plan to increase the level of automation, self-service and/or web access. Sixteen percent plan to provide help with Social Security, 12% plan to increase communication about the retirement process, and 10% plan to provide help with Medicaid planning.

Asked what retirement income tools they provide, 76% of employers offer online modeling tools, 57% provide information on plan distribution options, 47% offer managed accounts, 18% have managed payout funds, and 11% have an annuity or other type of insurance product in the plan.

Among those that do not offer any type of in-plan income options, 53% say a major reason is fiduciary concerns, followed by waiting to see how the market evolves (45%), operational or administrative concerns (40%) and participant utilization concerns (27%).

In addition, in 2019, 11% of sponsors plan to send targeted communications about the impact of loans on retirement, up from 8% in 2018. Concerned about plan leakage, 55% say they are considering allowing terminated employees to continue to repay loans. Twenty-nine percent are weighing implementing a waiting period between loans, 18% might study demographic data on those taking loans, and 16% might reduce the number of loans available.

While employers have embraced automatic enrollment, 40% believe target-date funds (TDFs) as the qualified default investment alternative (QDIA) should incorporate additional factors besides age. They are also starting to offer additional benefits, such as health savings accounts (HSAs).

Eighty-five percent of employers offer a health savings account (HSA), and of this group, 82% make contributions to the HSA. Seventy-five percent position their HSAs as good tools to help manage both short-term medical expenses and long-term savings.

Eighty-five percent of DC sponsors are look for missing participants. Alight notes that “with an increasingly mobile workforce, there are many people who are due retirement benefits from previous employers but have lost contact with those employers.”

To find missing employees, employers are conducting address searches, conducting outreach via first-class mail, sending certified letters, calling workers and emailing workers.

Alight’s full report can be downloaded here.

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DOL Invites Correction for Failure to Timely Remit Contributions

An update from law firm Masuda, Funai, Eifert & Mitchell, Ltd. says that based on reviews of Form 5500s, the DOL’s Employee Benefit Security Administration (EBSA) is sending “no action” letters to plan sponsors.

The Department of Labor (DOL) has been cracking down on plan sponsors that fail to remit contributions and loan repayments in a timely manner.

An update from law firm Masuda, Funai, Eifert & Mitchell, Ltd. says that based on reviews of Form 5500s, the DOL’s Employee Benefit Security Administration (EBSA) is sending letters to plan sponsors saying, “it appears that the Plan sponsor failed to remit ($xxx,xxx.00) in participant contributions and/or loan repayments to the Plan within the time period described in Department of Labor Regulation 29 CFR 2510.3-102.”

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The update, written by Frank Del Barto , chair of the firm’s Employment, Labor & Benefits group, points out that per DOL regulations, employee contributions and loan repayments generally become assets of Employee Retirement Income Security Act (ERISA) plans as of the earliest date that such contributions or repayments can be reasonably segregated from the employer’s general assets, but in no event later than the 15th business day of the month following the month in which the amounts otherwise would have payable to the employee. He says many plan sponsors mistakenly believe that the “15th business day” is the deadline to deposit employee contributions and loan repayments to the plan. However, as the “invitation to correct” letter states, “the 15th business day is not a safe harbor and is included in the regulation only as an outside limit of the time that may be considered for segregation of assets.”

“In contrast to the ‘15th business day,’ most plan sponsors must focus on the ‘earliest date that such contributions or repayments can be reasonably segregated from the employer’s general assets,’” Del Barto says. He notes that the ‘earliest date’ will be different for each plan sponsor, but is likely a matter of days.

Del Barto also reminds plan sponsors that, for ERISA plans with fewer than 100 participants at the beginning of a plan year, there is a safe harbor. For these plans, contributions or participant loan repayments shall be deemed to be segregated from the employer’s general assets on the earliest date possible if they are deposited into the plan no later than the seventh business day following the day the amounts are received or withheld, even if they could have been deposited earlier.

According to the update, the letters summarize the plan asset regulations, note that the failure to remit or the untimely remittance of contributions or loan repayments violates several ERISA provisions, and provide information regarding the DOL’s Voluntary Fiduciary Correction Program (VFCP). The law firm recommends that plan sponsors accept the DOL’s “invitation to correct” under VFCP in order to prevent the regulator from considering alternative enforcement measures.

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