Benefits March 13, 2024

PLANSPONSOR Roadmap 2024: Implementation and Communication

A plan sponsor and industry advisers discuss tactics for engaging participants with financial education programs.

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Investment adviser Jenna Witherbee says that after years of working with plan participants, she and her colleagues at 401k Plan Professionals noticed a pattern of questions coming from their plan sponsor clients’ employees.

The firm decided to take the common issues from those questions to create its own in-house financial wellness program. They then went on to build that offering with a key goal in mind: making it accessible and realistic for busy employees with limited time.

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“We wanted to create something that was on demand and something that was in bite-sized pieces that would walk people through the financial steps,” Witherbee said during a PLANSPONSOR livestream on March 7. “We created an 8-step financial wellness series that lives on our website and on our YouTube channel …. That is a way that we can reach more people.”

Creation is just one aspect, Witherbee says. The next is putting the resources in front of participants consistently. That can be in formats including employer emails, regularly scheduled educational meetings, and via the use of technology tools such as QR codes.

“It’s really important to repeat and use many different channels to try and reach people, that’s what I’m finding more and more,” she said.

Meanwhile, one-on-one engagement and the ability for a participant to jump on a Zoom call with an adviser for 30-minutes is still always appreciated and gets good results, she said.

401k Plan Professionals, she said, will also work with third-party financial wellness providers when it makes sense, but the key to any program working at its best is plan sponsor interest and focus.

Many of those plan sponsors, Witherbee said, are increasingly focused on customization for their participants, a goal she is finding new ways to meet. As an example, when onboarding a new client recently, the adviser gathered a number of consistent questions she got from the new plan sponsor’s participants. From there, Witherbee was able to work with the plan sponsor on a targeted educational campaign to try and educated and provide resources on those specific areas.

“We try to meet people where they are at,” she says. “If someone is sitting in a meeting and we are talking about Social Security and they are 28 years old, they are totally checked out …. In order for people to engage and want to take action we have to be talking about things that are relevant to them and their life stage.”

Stress Management

Richard Yezzi, Jr., vice president of operations, JX Enterprises Inc., told the livestream audience that his company places an emphasis on financial wellness for employees because “the toll and the stress” of general money trouble seeps into the workplace.

“Getting engagement on these programs and having people develop good habits is key for us,” says the operations head at the Hartland, Wisconsin-based transportation company. “Making sure that we raise awareness that people have access to the resources and information that they need to relieve those stresses …. is critical.”

Yezzi said that the firm has tried a “myriad” of communication tactics to engage people with its financial education offerings. The firm has used emails, message boards, one-on-one management conversations, texting, and even phone calls—the last of which was “not popular” with younger workers.

To track the results, Yezzi’s team will look at open rates and usage for its online financial programs and the communication campaigns themselves.

“When we push text messages or make message board changes, we can watch the results and see almost in real time if a particular message drove a result that we wanted, or if there was no impact,” he said.

There is a balance between communicating enough, but not too much, Yezzi noted.

“It’s about bringing balance to it,” he said. “Keeping things fresh, certainly. If there’s something relevant going on in the world, tying [financial wellness] into that when we have their attention [works].”

Honing the Message

Jay Schmitt, principal, Strategic Benefit Advisors, works with plan sponsors on identifying and choosing financial wellness programs. He noted on the livestream the importance of starting with a review of the participants a sponsor wants to reach.

“It really all starts with, ‘What are we trying to accomplish here?’” Schmitt says. “You’ve got workers who don’t look at a computer all day but do have a phone. It’s getting to those details and getting to who we are trying to reach—you can’t reach everybody. That would be great, but you need to be focused on what you’re trying to accomplish.”

Schmitt said that when his firm meets with a plan administrator, it first identifies all the financial resources available to participants, and then brings them together into a package of materials to target the workforce.

In terms of engagement, Schmitt noted that some clients like to have a vendor provide participants with a financial wellness score that will shift depending on their actions. He said that type of tool can help get people involved with their financial situation on an ongoing basis.

Unfortunately, Schmitt said, the call to action for many people to engage with financial wellness can be when something bad has happened around debt or financial needs. That is why it is crucial, he said, for employers to get resources and materials in front of employees early and often.

“The main effort we find with our clients is getting the employee to be aware of what is available to them,” he said. “Most employees just hit the unsubscribe button, but they really need to know that they can go to the company portal, website, whatever it is to find all the resources that they have access to …. so, when they do need it, it’s there.”   

The full livestream is available on demand on PLANSPONSOR’s website at this link.

Investing March 13, 2024

Corporate Pension Funding Hits Best Levels in Decades

Pension trackers report record corporate pension funding in February due to strong markets and higher interest and discount rates.

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Strong markets and elevated interest rates have spelled good news for corporate pension plan sponsors, with funding levels not seen since the early 2000s, according to a round up of leading industry reports.

The surplus in pension funding could have some plan sponsors considering what to do with their excess pension assets. Earlier this month, Eastman Kodak announced it would shut its investment office, shifting the management of its assets to NEPC LLC, and is reportedly considering how best to utilize its $1.2 billion pension surplus.

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Agilis

Pension discount rates increased for a second month in a row in February, resulting in a decrease in liabilities for corporate plans, according to actuary and investment consultant Agilis’s monthly pension briefing. These liabilities decreased between 1.8% and 2.8% in February.

“February was another good month for pension plan sponsors as discount rates increased and equity markets were positive,” Michael Clark, managing director at Agilis, said in a statement with the report. “The primary driver for discount rate increases was the increase in Treasury yields over the month as the market is not anticipating any rate cuts from the Fed in the short-term.” director at Agilis in the report.

U.S. equities were the highest performing, while developed foreign market equities delivered modest returns in February, the firm noted.

“Equity markets were strong across the globe, with the S&P 500 up over 5% during the month,” Clark said. “Continued equity growth has been helped by the Fed posturing rate cuts later in the year, inflation that was in line with expectations, and a continued resilience in the labor market. Whether or not these trends continue is anyone’s guess, but as we’ve said before expect 2024 to be a volatile ride with markets and rates.”

WTW

According to WTW’s Plc’s Pension Index, which tracks the financial performance of a hypothetical 60/40 portfolio, the index increased to 113.0 by the end of February, which is the highest it has been since January 2001. This is a 3.8% increase over January.

Equities in the hypothetical portfolio returned 4.8% during the month, while fixed income returned negative 1.2%. A decrease in liabilities was due in part to the increase in discount rates. Combined with returns, these were responsible for the month’s strong upswing in funded status, according to WTW.

LGIM America

LGIM America’s Pension Solutions Monitor, which tracks a hypothetical corporate defined benefit plan with a 50/50 asset allocation, reported that its funded ratio rose to 107.3% in February, up from 103.9% in January.

Equities, which rose 4.3% in the month, boosted plan returns. Discount rates increased 27 basis points, and p, with liabilities decreasing 2.2%.

October Three

October Three Consulting attributes strong pension performance in February to strong equity markets as well as higher interest rates. October Three tracks the hypothetical performance of two separate plans in its monthly pension finance update.

Plan A, a traditional 60/40 portfolio, returned 5% in February, while Plan B, a largely retired plan with a 20/80 asset allocation, returned 1% during the month.

Equities returned 5% according to October Three’s tracker, while bonds returned between negative 2% and 4%. Combined with pension discount rates that increased 0.2% in February, Plan A, the equity-heavy portfolio, significantly outperformed its 20/80 counterpart, returning 2% through the first two months of the year, while Plan B returned negative 1% during that time period.


Wilshire

Wilshire found the aggregate funded ratio for U.S. corporate plans increased 3.4% in February to 109.4%, the fourteenth consecutive month-over-month increase in pension funding surplus, according to the firm’s data.

“U.S. corporate pension plans have maintained their overfunded status for 14 consecutive months since early 2023,” Ned McGuire, managing director at Wilshire in the firm’s monthly pension plan funding status report, said in a statement in the report. “February’s increase in funded status was attributed to a decline in liability values, driven by a nearly 30 basis point rise in corporate bond yields and an increase in asset values.”

Wilshire attributed the increase in pension funding to strong equity returns, as well as a 2.8% decrease in the liability of plan assets, and a 0.2% increase in the value of those assets.

“The FT Wilshire 5000, along with other major equity indices, achieved all-time highs in February, countering negative bond returns caused by rising fixed income yields,” McGuire continued “The positive trend in asset and downward trend in liability values has the estimated funded ratio at its highest since Wilshire began tracking in late 2014.”


Milliman

Funded status among the largest 100 U.S. corporate pension plans rose to 104.9% at the end of February, according to the Milliman 100 pension funding index, from 102.8% in January.

Funded status was driven by rising discount rates, which in February increased 21 basis points to 5.35%. Plan liabilities decreased by $30 billion, while plan assets declined $4 billion to $1.349 trillion during the month of February.

“After discount rates dropped significantly at the end of 2023, the past two months of rising rates and corresponding funded status gains have added to the PFI plans’ funding surplus,” Zorast Wadia, principal and actuary consultant at Milliman, said in a statement in the PFI report. “However, with expectations of rate cuts later in the year, it’s possible these gains may be short-lived unless plan sponsors adhere to matching asset-liability strategies to control rate volatility.”

In Milliman’s optimistic forecast, one in which discount rates increase to 5.85% at the end of 2024 and 6.45% at the end of 2025, with asset returns of 9.8%, funded status of these corporate plans would increase to 116% by year end 2024 and 130% by year end 2025.

In the firm’s pessimistic forecast, with discount rates declining to 4.85% and 4.25%-year end 2024 and 2025 respectively, with 1.8% annualized returns, the funded status of these plans would decline to 97% year-end 2024, and 88% by year-end 2025.


Insight Investment

The funded status of U.S. corporate plans increased to 111.7% in February, an increase from 108.2% the previous month, according to Insight Investment. The asset manager attributed this increase to a 22-basis point increase in pension discount rates, and positive returns from growth assets. According to Insight, asset returns were 0.5%, while liability returns were negative 2.6%.

Insight Investment noted that there have been increased discussions about what to do with excess pension surpluses.

“Considering last month’s strong performance, sponsors may be able to take risk off the table and remain on track to meet their long-term funded status objectives,” Ciaran Carr, head of the client solutions group, North America, said in a statement in the report. “We are also seeing an increased dialogue around surplus management from pension plans that are near or above fully funded levels.”

Aon

The funded status of U.S. pension plans of companies in the S&P 500 increased to 104.2% in February, from 101.8% the month before, according to Aon plc’s pension risk tracker, which tracks the daily funded status of defined benefit plans for those businesses.  

During 2024, the aggregate funded ratio for U.S. pension plans in the S&P 500 increased from 100.9% to 104.2%, according to the Aon Pension Risk Tracker. The funded status improved by $51 billion, which was driven by liability decreases of $68 billion offset by asset decreases of $17 billion.

 

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