Compliance August 31, 2022

Puerto Rico Hospitality Union Pension Latest to Get PBGC Relief

The stressed union pension plan will receive more than $28 million in special financial assistance, including interest to the expected date of payment to the plan. 

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This week, the Pension Benefit Guaranty Corporation announced its approval of another special financial assistance payment for a stressed union pension plan.

The latest plan to receive relief is the Gastronomical Workers Union Local 610 and Metropolitan Hotel Association Pension Fund, known as the GWU Local 610 Plan. Based in San Juan, Puerto Rico, the pension covers more than 2,600 participants in the hospitality industry.

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The GWU Local 610 Plan became insolvent in June 2021. At that time, the PBGC started providing financial assistance to the plan. In a statement about the latest relief payment, Secretary of Labor Marty Walsh, who serves as the chair of the PBGC’s board of directors, said the new assistance will deliver the secure retirement the union’s workers were promised in return for many years of hard work.

As Walsh noted, the special financial assistance will enable the plan to pay retirement benefits without reduction for many years into the future. In all, the plan will receive $28.3 million in assistance, including interest to the expected date of payment to the plan. 

In addition to the $28.3 million to be paid to the plan, the PBGC’s Multiemployer Insurance Program will receive some $2.8 million. This is equivalent to the amount of the GWU Local 610 Plan’s outstanding loans, including interest, for the previous financial assistance the PBGC provided beginning in June 2021.

The PBGC’s Special Financial Assistance program was enacted as part of the American Rescue Plan Act of 2021. The program provides funding to severely underfunded multiemployer pension plans, and it requires plans to demonstrate eligibility for relief and to calculate the amount of assistance pursuant to ARPA and PBGC regulations. As of August 30, the PBGC has approved over $7.5 billion to plans that cover over 152,000 workers, retirees and beneficiaries.

Under the program, the payments and earnings thereon must be segregated from other plan assets and may be used only to pay plan benefits and administrative expenses. Plans are not obligated to repay the relief to PBGC, but plans receiving SFA are also subject to certain terms, conditions and reporting requirements, including an annual statement documenting compliance with the terms and conditions.

The relief program operates under a recently updated final rule that became effective on August 8. Sources agree that the final updates made to the SFA program are helpful, but some are concerned about the expanded ability to invest relief funds in potentially volatile equities.

Benefits August 30, 2022

Plan Sponsors: Act Now to Link Student Loan Forgiveness and Retirement

Alight Solutions offers tactics for plan sponsors to boost workers’ 401(k) deferrals following the president’s student loan forgiveness announcement.

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Alight Solutions is urging plan sponsors to champion the idea that participants should allocate any additional income released from student loan forgiveness to their retirement accounts.

The Alight Solutions 2021 Employee Wellbeing Mindset Study found that 70% of workers under age 40 with student loan debt say that student loans have significantly or somewhat impacted their ability to save for the future. The report also showed that 23% of respondents say that their level of debt is ruining their quality of life.

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Illustrating the growth of a dollar deferred and invested to retirement is one way to tackle this. Considering the executive order from President Joe Biden, Alight took a fresh look at how income could affect retirement savings. 

Earlier this month, President Biden announced that the Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell-grant recipients.  

“The additional income that participants may be able to gain from the Student Loan Forgiveness Plan could help change this,” according to Alight. “For example, if an employee at age 25 started saving $100 a month, then by the age of 65 they would have almost an additional $300,000 in savings. Specifically, that would be $48,000 more money actually saved, but more importantly nearly an additional $250,000 in just interest income.”

Plan sponsors have several tactics available to help provide workers with a clear understanding for how to best allocate the additional funds and connect student loan cancellation with retirement savings. And the federal student loan forgiveness program presents a window for plan sponsors to urge workers with student loan debt to boost their retirement plan contributions, says Virginia Maguire, vice president of wealth solutions and strategy at Alight Solutions.

“While long-term savings planning is seemingly financial in nature, it really spans across an employees’ broader well-being,” she says. “For instance, our studies show that 43% of employees reduced or stopped saving for the future (for retirement or other goals) in order to pay for health care costs.”

Alight favors plan sponsors use tactics such as personalized engagement and messaging to urge plan participants to act to increase their contributions.

Employers can tie 401(k) and health savings account messages via applications, online experiences and email specifically to loan forgiveness, with examples—like above— that illustrate the time value of money, through appropriate demographic channels used by them and images resonant with a younger and diverse cohort.

Another technique for plan sponsors to engage users is to enable access to unbiased outside of the firm advisers and experts to help workers.   

“Having live trained experts available to discuss different savings opportunities across all their benefits (401(k), [health savings account, health care, etc) who are acting solely in the best interest of that employee is incredibly valuable,” adds Maguire.

Another tactic for plan sponsors to assist is to offer paycheck savings planners and financial well-being tools: “Provide digital tools that span multiple benefits/savings vehicles that help employees deal with their entire paycheck and their entire benefit lineup,” says Maguire.  

Employers are looking to help workers with financial stress and options to increase well-being at the workplace are desired by workers and plan sponsors, she adds.  

“With employers’ continued desire to drive optimal well-being support and utilization, they may be best positioned to provide employees who qualify for the Student Loan Forgiveness Plan with personalized guidance around how to best allocate these additional dollars toward long-term savings,” she says.

While many retirement plan participants are saddled by student loan debt that is preventing their saving and investing for retirement, many are comfortable sharing personal information on their financial situation, adds Maguire.   

“The good news is that between 70-80% of Gen Z and Millennials report they are comfortable with sharing personal financial information with employers to gain personalized guidance via messaging, tools, and live advisers,” she says.

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