Administration June 6, 2019

PSNC 2019: A National Plan Sponsor Town Hall

Plan sponsors from across the U.S. shared their biggest challenges and successes during the opening session of the 2019 PLANSPONSOR National Conference in Washington, D.C.

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From Left to Right: Alison Cooke Mintzer; Tim Brown; and Joe Ready. Photograph by Matt Kalinowski


The 2019 PLANSPONSOR National Conference kicked off Wednesday afternoon in Washington, D.C., starting with a wide-ranging town hall session featuring Joe Ready, head of Wells Fargo Institutional Retirement and Trust, and Tim Brown, senior vice president of life and income solutions at MetLife.

The pair fielded a series of questions solicited in advance from plan sponsors attending the conference, with an emphasis on addressing their practical challenges and successes in terms of boosting plan participant outcomes.

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The first question for the pair asked what plan sponsors should focus on doing once they have reached strong average participation and deferral rates, and after they have streamlined the investment menu.

“Once you reach this point of having a quality plan in place, you need to make the effort to stay grounded as a committee on your philosophy of what success will look like over time,” Ready said. “It is always important to ask, what is your philosophy for having this benefit and is this philosophy remaining the same over time? Plans can always be improved, especially if you want to offer a top quality plan that will attract and retain talent.”

Both Ready and Brown agreed that a great next step after quality plan designs are implemented is to now focus on communicating that plan design effectively across the employee base. This can be quite a challenge as the size, diversity and complexity of the workforce grows.

“How much am I going to invest in those communication strategies? This is a question that plan sponsors have to weigh in addition to asking what their philosophy is and how generous and progressive they want to be,” Brown said.

Next the pair was asked for suggestions about how to grab employees’ attention when there are many different and generous benefits being offered.

“People absorb information in different ways, so you have to be methodical about how you are framing the behaviors and actions you are trying to promote in your plan,” Brown suggested. “Above all, your communications have to make things seem approachable and manageable. If we start to put people in different categories and frame the communications against their investment horizon and their unique challenges and risks, this will get their attention. Additionally, we know that people in general are pretty competitive and interested in what their peers are doing, so that’s another avenue to consider, using peer anecdotes and even elements of gamification.”

Ready agreed, saying the retirement benefit communications need to be “simplified, individualized and humanized.”

“We tell young people that, if they can save 10% from early in their career, they will have real control over their future retirement,” Ready said. “We warn them clearly that, if they wait, they will lose more and more control over their future. That’s how you humanize this conversation.”

Asked about the best ways to talk about retirement income products with plan participants, Brown said, it is important to frame annuities as income insurance—not as investment funds.

“Pure and simple, annuities are insurance,” Brown said. “In addition, we need to talk more about the fact that annuitization is not an all-or-nothing proposition. For pretty much every retirement investor, there is going to be a need to balance liquid savings, insurance protections and long-term investments.”

According to Ready, it makes a lot of sense to talk about annuities in the context of equity market volatility and the opportunity to create an “income floor.”

Turning to the hot topic of “financial wellness,” Ready and Brown said, all clients are talking about this, but there is still no single definition or expectation.

“These programs are important, but they are always going to be evolving,” Ready said. “In my mind, we need to make it clear that financial wellness goes beyond the asset allocation. It’s way beyond asset allocation. It’s about budgeting, the timing of retirement, minimizing taxes, and so many other topics.”

Ready and Brown both emphasized that, while many free services may be available, quality financial wellness services are worth paying for. They agreed that the amount of financial wellness spending can pay for itself five times over in terms of promoting better outcomes.

“We have to change the whole discussion about the value of financial wellness. People will be happy to pay for something where they see a clear value,” Ready said.

Brown pointed out that, in the marketplace today, some financial wellness solutions are very retirement focused, while others are much more holistic, so it’s important to understand what the point of any given service or solution is, along with asking about the fees and the compensation model.

“In our experience, once you hook somebody and get them interested in the basics of saving and budgeting, they will be hungry for more information,” Brown said. “Some may even become interested in creating a one-on-one advisory relationship. It’s up to the sponsor to decide how much access to provide to these types of services in the workplace.”

The final question in the town hall session had to do with the importance of emergency savings programs in terms of promoting better participant outcomes. Ready and Brown, on this point, agreed that the power of “compartmentalization” and “virtual envelopes” should be explored.

“There is a real psychological and behavioral benefit to earmarking dollars that are coming in for specific purposes, such as emergencies or big-ticket purchases,” Brown said. “People can still access this money, but it’s earmarked right out of the gate, as soon as the paycheck comes in. There is already strong evidence emerging that this compartmentalization approach really helps people prepare for emergencies, and to therefore get in a better position to save for retirement.”

Compliance June 6, 2019

PSNC 2019: Washington Update

Attorneys discuss provisions of the widely supported SECURE Act, plus hot topics in regulation.

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Art by Photo by Matt Kalinowski

From Left to Right: David N. Levine; Robin M. Solomon; and Alison Cooke Mintzer. Photo by Matt Kalinowski

On June 5, the opening day of the 2019 PLANSPONSOR National Conference (PSNC), David N. Levine, a principal with Groom Law Group, and Robin M. Solomon, a partner at Ivins, Phillips & Barker, discussed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which recently passed the House by a practically unanimous margin of 417 – 3.

Solomon said the House bill is not likely to pass the Senate as is because a few senators object. Notably, Ted Cruz, R-Texas, contends that the bill doesn’t allow 529 Plan savings to be used for K–12 and home schooling. However, Solomon noted that the Senate has its own bill—the Retirement Enhancement and Savings Act (RESA)—with similar provisions to the SECURE Act. “If the Senate passes RESA, the two bills will have to be reconciled by lawmakers,” she said.

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Among the SECURE Act’s—and RESA’s—provisions are those that would allow unrelated plan sponsors to band together in pooled employer plans, otherwise known as “open” multiple employer plans (MEPs). Levine said the sanction of open MEPs could have a big impact on the market. For example, in states with automatic IRA [individual retirement account] plans, small businesses could participate in an open MEP and get out of the state plan.

He added that plan sponsors will have to decide whether the scale and standardization of open MEPs is worth it. “I believe there will be some good open MEP product offerings, but there may be some that are not,” Levine said. “The devil is in the details, and the Department of Labor [DOL] is already thinking about the structure.” He reminded plan sponsors that they can’t just participate in an open MEP and walk away; they’ll still have responsibility for selecting and monitoring the provider and watching fees.

Among other provisions of the SECURE Act is an amendment of eligibility rules under the Employee Retirement Income Security Act (ERISA). Solomon explained that the legislation would require dual tracking of eligibility for plan sponsors that have a one-year waiting period for eligibility for their defined contribution (DC) plans that allows for part-time employees to participate. Part-time employees would have to work three consecutive years, 500 hours in each, to participate in the plan, and they would get past-vesting credit.

“Congress is trying to make this cost-neutral for plan sponsors; for example, they don’t have to provide the same benefits to part-time employees, but administering the dual tracking is going to be difficult,” Solomon said. “What if employees switch between being full time and part time? There is still a lot of complexity to work out. Plan sponsors may decide to change their eligibility rules from a one-year wait to immediate eligibility.”

Levine added that plan sponsors would have to work carefully with their payroll provider to set up this dual tracking. “Missing someone is costly,” he said.

Moving on, Levine discussed the SECURE Act’s provisions about safe harbor plans. One change is the elimination of the requirement to give participants a nonelective safe harbor plan notice. Another is that plan sponsors can elect to have a safe harbor plan late in the plan year. “This offers the benefit of adding lower-paid people into the plan and not worrying about nondiscrimination testing,” Levine said.

Speaking of testing, Levine also told conference attendees that the SECURE Act allows for frozen defined benefit (DB) plans to not have to worry about nondiscrimination testing. “Of course, there are a few hoops they have to go through first, but nothing is perfect,” Levine said.

Currently, once a participant reached the age of 70 1/2, he has to begin taking required minimum distributions (RMDs) from retirement plans and IRAs. Levine and Solomon joked about how such a random age was chosen. But the SECURE Act changes that age to 72, Solomon said, and it repeals the prohibition on contributions to IRAs after age 70 1/2.

Solomon added that if a participant dies, some plans allow the beneficiary to take distributions from the plan over his or her lifetime, though current law allows plan sponsors to force the money out of the plan within five years. “Congress wants its tax revenue, so now they are imposing a maximum 10-year limit on taking the money out of the plan. However, plan sponsors may still impose a shorter, five-year limit,” she said.

Another provision in the SECURE Act—which, Levine noted, the DOL has been making proposals about for years—is the requirement of the inclusion of a lifetime income disclosure on participant statements. Solomon pointed out that some providers are already doing this, so it will not be a big shake-up.

However, something in the legislation that may be a big change for the DC plan industry is the provision of what Levine called a “safer” safe harbor provision, making it less problematic for plans to select a lifetime income provider. Concerns over fiduciary liability is one reason DC plan sponsors have not been including lifetime income products for participants. Levine said the bill also provides that if a plan includes a lifetime income product and the plan sponsor changes recordkeepers, the money in that product can be taken out of the plan. “This also may encourage more plan sponsors to offer these products,” Levine said.

Solomon also discussed the idea in the bill about a consolidated Form 5500 for plans in controlled groups or for plan sponsors that offer multiple retirement plans. “There may be a mechanism in place in the future for such plan sponsors to file only one Form 5500. However, again there are hoops. For example, the plans must have the same plan year, same investment platform, same trustee and same plan administrator,” she said. Solomon added that she’s not sure how this will affect the annual financial audit requirement for plans with more than 100 employees.

Finally, Solomon noted, the SECURE Act offers a new distribution reason. DC plan participants can take out up to $5,000 from their accounts in the year following a child’s birth or adoption, and they can pay that money back to the plan.

Regulatory issues

Levine and Solomon moved from discussing provisions of the SECURE Act to discussing what regulators are up to. The DOL is still focusing heavily on plan sponsors finding missing participants. “You would think sending a certified letter or using an internet search engine would be enough,” Levine said. “However, the DOL has gone so far as to say, ‘Didn’t so-and-so used to ride in the truck with that participant? Have you called him?’”

Solomon said the problem is not just not knowing where people are; plan sponsors know where some participants are, but those people don’t want to take their money out—for example, they don’t want to pay taxes or disqualify themselves for a government program—so they don’t respond. “Hopefully, we will soon see multi-agency, comprehensive guidance,” she said. Until then, she recommends that plan sponsors document all of their processes and the steps they’ve taken to try to reach participants.

Solomon also discussed the extension of the determination letter program by the IRS to cash balance plans and merged plans, as well as the expansion of the Employee Plans Compliance Resolution System (EPCRS) to allow more errors to be self-corrected and to add on correction methods.

Regarding the IRS, Solomon noted that the private letter ruling for Abbott about matching student payments as retirement plan contributions opened the door for a new way for employers to offer student loan repayment benefits. The Abbott benefit was sanctioned by the IRS because it was structured a certain way, and Solomon said plan sponsors do not have to get their own private letter ruling if they structure their benefits in this same way.

Levine discussed the hot topic of cybersecurity for retirement plans. “Our industry is a gold mine for cyberattack, as, for many people, their retirement plan represents their largest asset other than their house,” he said. According to Levine, plan sponsors need to know how their data is controlled and accessed and who touches it. “Insurance is important,” he said. “Because, even if you do everything right, something can still happen.”

Levine said data privacy is a separate issue. He cited the Vanderbilt University 403(b) lawsuit settlement, which requires plan fiduciaries to make sure recordkeepers and other service providers don’t use participant data for the purposes of cross-selling. “There are so many services that are tied to retirement plans—rollover services, financial wellness programs, managed accounts,” Levine said. “But plan sponsors need to know where participant data is held and who is using it.”

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