Products April 26, 2021

Delivering a Next Generation Participant Experience

John James, with Vanguard, says the retirement plan industry is ripe for disruption in delivery and personalization.

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John James, managing director and head of Vanguard Institutional Investor Group (IIG)—defined contribution (DC) recordkeeping, defined contribution investment only (DCIO) and outsourced chief investment officer (OCIO)/traditional institutional management—started in the retirement plan industry in 1990 in Australia. Recounting his many roles over the past 30 years, he says his time working as a plan sponsor has helped him in his provider roles.

And now James says he thinks the retirement plan industry is ripe for disruption.

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“There are two main reasons,” he says. “First is recordkeeping platforms. Traditional platforms are monolith and clunky. They take a lot of investment over the years and, in some ways, they are slow and costly.” James says Vanguard made the decision to be bold and move to a cloud platform.

Last summer, the firm announced that Infosys would assume day-to-day operations for Vanguard’s defined contribution (DC) plan recordkeeping business, including software platforms, administration and associated processes.

“It completely changes the speed of processing and how quickly we can add products and services,” James says. “Data is kept in a secure cloud; from an information and security standpoint, it enhances our abilities.”

The firms said their partnership would provide greater insights and unprecedented personalization to help deliver better outcomes for participants and plan sponsors. That personalization is the second reason James says the industry is ripe for disruption.

“It’s the next evolution from offering top-performing funds for participants’ retirement accounts: the ability for participants to get advice,” he says. “Participants want situational point-in-time advice. They want ongoing advice. So we have digital advice available to participants on an ongoing basis.”

James adds that Vanguard offers a personal advice service, with not only digital advice but access to advisers to talk through situations. “Top investment performance—and we want to offer that at the lowest price possible—plus advice, gives participants better outcomes,” he says.

To better serve retirement savers in the future, Vanguard is working on the new platform to enable it to do a range of things. “We want to double participants’ next best actions—increasing contributions or improving investments,” James says. “Seventy percent of the participant experience is being redesigned. We want them to really be engaged with their retirement readiness. And the experience is digital; they don’t have to make phone calls.”

James says Vanguard hasn’t forgotten about the plan sponsor experience. “If the platform operates well, that benefits both participants and plan sponsors. And plan sponsors will get better information and data analytics,” he says.

James says he would call on the retirement plan industry to encourage people to invest more for retirement, through policy and tax benefits. “That should be a constant focus of the industry,” he says.

In addition, James says, plan sponsors need to support the end-to-end experience of participants, emphasizing again that it must include advice. “We’ve done a lot of modeling and know advice has a big impact on outcomes,” he says.

James says the common thread across all these efforts is looking out for investors and making sure everyone gets a fair shake at the best chance for success. He says that’s one reason Vanguard supports efforts to allow 403(b) plans to offer collective investment trusts (CITs). “Our numbers show the cost savings to 403(b) participants in plans that offer CITs could amount to as much as $250 million per year,” he says.

“We’ve really doubled down on the retirement industry sector as a company because retirement accounts are at the core of individual investment success,” James says. “With an elite recordkeeping system and great access to low cost investments and advice, we couldn’t be more committed.”

Benefits April 26, 2021

How Can HSAs Be Framed As Retirement Savings Vehicles?

There are different needs competing for employees’ savings, but employers that want to promote savings in HSAs have several ways to do so.

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A survey from Further, a national health savings administrator, found 65% of consumers report leveraging their health savings account (HSA) as a spending resource, with 23% stating they use their account equally for saving and spending. Yet more than two-thirds of employers said they associate HSAs with savings only, suggesting a gap in how employers are positioning these accounts compared with how employees are using them.

David Speier, managing director of benefits accounts at Willis Towers Watson in Washington, D.C., said, “[HSAs] are tied to plans with higher deductibles; employees have spending needs and they are already saving in retirement accounts. We see in all our data that pure savers are a small fraction of overall account holders. When more are living paycheck to paycheck, there will be more spenders, not savers.”

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A study conducted by the Employee Benefit Research Institute (EBRI) found more than half (56%) of 401(k) participants reduced their retirement plan contributions in the first year that they made HSA contributions. The study noted there is a limit to how much some participants can save for various goals.

PLANSPONSOR recently conducted a survey of employers and found that among those who offer HSAs, none position them exclusively as a strategy to save for health care expenses in retirement. Nearly half (48%) position them as mainly a short-term savings tool that doubles as a retirement savings strategy, and one-third (32%) reported that they market their HSAs to employees as equal parts retirement savings strategy and a short-term health savings tool.

Kim Buckey, vice president of client services at DirectPath LLC, headquartered in Burlington, Massachusetts, says most consumers are still using HSAs to cover immediate health care expenses. However, she notes that those who are fortunate enough to have an HSA may have seen their account assets accumulate because many people were foregoing medical care during the pandemic. Buckey says this is something employers can leverage as they communicate about HSAs.

“If employees can avoid using the funds for immediate purposes, they can see from the experience during the pandemic how it can add up and be helpful for longer-term expenses,” she says. Buckey adds that longer-term savings doesn’t have to mean saving for retirement—it could also mean planning for having a baby in the future, for example.

The effects of COVID-19 on employees’ finances have caused many to question whether they need to rethink their timing for retirement, and Buckey notes that some have been forced into retirement.

“It’s important for employers to educate employees about the medical costs in retirement,” she says. “Most employees don’t understand that Medicare doesn’t cover everything. And, according to Fidelity’s estimates, the average couple retiring at age 65 in 2020 would need $295,000, after taxes, to pay for health care in retirement. This is in addition to living expenses.”

Plan sponsors should emphasize employees’ need to supplement savings, Buckey suggests.

“This is a great opportunity to introduce a transparency program so employees can find medical care for a lower cost,” she says. “This will reduce the amount they will need to take out of their HSAs for current expenses, so that savings will accumulate for future use.”

DirectPath’s own studies show HSAs are increasingly popular offerings from employers. Its 2020 Medical Trends and Observations Report shows 69% of employers offer HSAs versus just 12% offering health reimbursement accounts (HRAs). But, Buckey concedes, many employees will struggle to find the extra money to contribute.

“The most successful HSAs do involve employer contributions,” she says. “If employers contribute seed money to HSAs or offer HSA contributions as an incentive for participating in a wellness program, it will encourage employees to consider HSAs as a savings option.”

Buckey recommends plan sponsors “sell” HSAs just as they do their retirement plans. “Talk about the tax advantages, show how even a small contribution can grow over time, discuss the investment options that are available—even auto-enrolling participants into HSAs will help, as it is one less decision for participants,” she says.

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