Benefits June 9, 2022

PSNC 2022: How to Improve Employees’ Financial Wellness

Plan sponsors can offer creative, effective financial wellness programs at little cost by partnering with all benefit providers and advisers.

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Financial wellness has in the past been a fuzzy topic, said Sean Bjork, president, Bjork Asset Management, Inc., during a panel discussion at the 2022 PLANSPONSOR National Conference in Orlando.

“Everyone’s definition was maybe a little different. There was some tie-in with health benefits, so when sponsors talked about how to roll out a financial wellness program there was no unified approach,” he said. “But people are starting to align, providers are realizing ways to attach financial wellness programs to their benefits offerings.”

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Bjork and other panelists addressed how to get resources to run a financial wellness program, the cost of offering a financial wellness program and how to get employees to actually use one.

Steve Lilienthal, human resources benefits manager, True Value Company, the 2022 PLANSPONSOR Plan Sponsor of the Year winner in the corporate DC >$250 million to $1 billion category, said his company’s program was no cost. “We used [our recordkeeper] and all the resources they offer that we could use,” he said. “Call your EAP [Employee Assistance Program] and ask how to talk about legal issues and mental health issues with employees. Our CFO loved that we used our vendors as much as we could so our financial wellness offering had no cost.”

Bjork added that just having a conversation with existing partners is a wonderful place to start. “Even some investment providers are rolling out financial planning programs or apps,” he noted.

Gwen Schnitzler, assistant vice president and human resources director at Forward Bank, the 2022 PLANSPONSOR Plan Sponsor of the Year winner in the corporate DC <$25 million category, said that to get employee buy-in, the bank talked about holistic benefits and continuously pushed out information about all benefits to employees. “We kept pointing out to them how we continue to take care of them and have something to offer for different points in their lives,” she said.

In addition to using plan providers, Schnitzler suggested, plan sponsors should go to their advisers for help. “Our adviser has been helpful,” she told conference attendees. “We have advisers on staff, so employees have access to a financial planner for free.”

Bjork said being creative and getting buy-in from company executives is critical to financial wellness program success.

One way Forward Bank got creative related to the recent inflation and gas prices. “A year ago, employees didn’t really have to budget for such things, so they are shifting their focus,” Schnitzler said. “A month ago, we purchased $50 gas cards from employees’ local gas stations to give them a bit of a helping hand. We supported local gas stations as well as employees. It was a way to recognize things employees are struggling with and help.”

In addition, when COVID-19 hit and things shut down, Forward Bank wanted to help employees as well as customers of the bank, especially small businesses. The did what they called “Thoughtful Thursday”—every Thursday for about six weeks, the bank ordered lunch in for employees from local restaurants that are customers of the bank, Schnitzler explained. It also purchased gift cards for employees and let them choose the restaurant they preferred to use them with.

Bjork suggested that to maintain buy-in from higher ups in the company, plan sponsors can measure retirement plan and employee financial stats before and after financial wellness initiatives. “If you help them take care of their student loan and consumer debt and emergency savings, employees will become better retirement savers,” he said. In addition, plan sponsors can measure such things as employee absenteeism and stress.

Compliance June 9, 2022

PSNC 2022: Legislation and Regulations Regarding Retirement Income

What do ERISA, the SECURE Act and government regulations say about retirement plan sponsors’ duties in offering retirement income strategies to participants?

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Jodi Epstein, a partner in Ivins, Phillips & Barker, spoke to attendees at the 2022 PLANSPONSOR National Conference, in Orlando, with optimism that legislators on Capitol Hill have great interest in developing policies that enable defined contribution plans to offer retirement income.

“Defined benefit plans are going away,” Epstein said, “and DC retirement plans are attempting to put in place what DB plans had, by creating an income stream in retirement. The contributions that participants—and their employers—make to their accounts still need to be distributed. And, with millions of Baby Boomers retiring, the annuity push is in the DC space.”

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There are several ways to take retirement income Epstein noted. Taking a lump-sum distribution historically does not work well. “You hope the participant will move the funds into an IRA, but often they don’t do that, and the lump sum is spent in just a few years,” she observed.

From an Employee Retirement Income Security Act point of view, arranging for retirement income requires both the fiduciary role and then the design, or settlor, role. The design question is whether the plan sponsor wants to take on a distribution option. The implementation is a fiduciary role where the sponsor must be conscious of fees, interactions and the quality of the experience for the participants.

“What the DOL [Department of Labor] and the IRS are trying to do is to give the plan sponsor more room so they don’t have to babysit this situation,” Epstein said.

Certain legislation has been instituted. With hopes that participants will become more cognizant of their need for lifetime income, Congress, in 2019, enacted the Setting Every Community Up for Retirement Enhancement—aka SECURE—Act, a provision of which mandated that lifetime income illustrations appear at least once a year in participant statements, starting by this September 18. The DOL has devised assumptions that DC plans may use to estimate the monthly income that workers’ retirement plan balance will likely generate over their lifetime.

In July 2014, IRS regulations allowed DC plan participants to purchase a deferred income annuity if their plan offered one. These annuities are limited to 25% of a participant’s account balance, or $125,000, whichever is less, across all participant funding sources and can pay out for a single life or joint lives. But the deferred income annuity does not count for required minimum distribution purposes. The House-passed version of “SECURE 2.0”—viz., the Security a Strong Retirement Act of 2022—would eliminate the 25% limit.

In-plan annuities can give participants lifetime income during their retirement, but employers “are concerned about being sued for breach of fiduciary duties if the annuity provider they select faces problems years from now and about what their responsibilities would be for ongoing monitoring and oversight of that provider,” she said. A provision in the SECURE Act made it easier to offer lifetime income in a DC plan, relieving plan sponsors of the burden of responsibility for the annuity provider “until the end.”

The legislation protects employers from liability if they select an annuity provider that, along with meeting other requirements, has been licensed for the preceding seven years by the state insurance commissioner to offer guaranteed retirement income contracts. The SECURE Act also increased the portability of annuity investments by letting employees who take another job or retire move their annuity to another DC plan or to an IRA without surrender charges and fees.

Plans may rely on written representation from insurers about their status under state insurance laws. The DOL provided a safe harbor in Field Assistance Bulletin 2015-02.

Portability rules mean a participant may take a distribution of a lifetime income investment if the plan no longer offers that investment. Participants may roll it into an IRA or another retirement plan. If it’s an annuity contract, it may be distributed to the participant.

There’s a lot of work ahead for Congress to make this easier for plan sponsors. According to Epstein, “This is the next retirement trend for early adopters. It’s coming, but it’s complicated.

 

“Currently, there are no legal stumbling blocks; there is enough of a pathway. But plan sponsors don’t understand annuities; they find them to be expensive, and they’re worried that they’ll add annuities to their plan design and participants won’t use [them].”

 

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