Opinions June 29, 2021

Steps to Implement a Financial Wellness Program

Peg Knox, with DCIIA, discusses the implementation of financial wellness programs, from the introduction to employees to the measurement of success.

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Financial wellness programs are increasingly embracing a broader definition of the term to include the full range of employer benefits, such as health and retirement benefits, emergency savings, work/life balance programs, etc. This more holistic view has been driven in part by the COVID-19 pandemic, which has magnified issues in emergency savings, income inequality, work-life balance and other relevant topics, and accelerated change in this area.

The Defined Contribution Institutional Investment Association (DCIIA) provided a starting framework for financial wellness discussions in our 2017 white paper, “A Financial Wellness Primer.” This paper may help to address the “why” of implementing a financial wellness program, noting, “Whether motivated by altruism and paternalism, ROI [return on investment], lower costs or a dynamic workforce environment, the employer’s goals and employee’s desires are well aligned when it comes to retirement readiness and financial wellness in the workplace.”

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In previous articles, we have covered participant communications and creating inclusive financial wellness programs and touched on some of their typical elements and implementation considerations. As wellness programs evolve, they are going beyond retirement topics to include education and assistance with:

  • Budgeting and personal finance;
  • Student loans;
  • Emergency savings; and
  • Financial considerations in health insurance and health care.

When announcing a new financial wellness program or offering, consider the following:

Remind employees of what’s in it for them: To those creating a wellness program, it might seem obvious why it’s important and how it benefits employees, but those features need to be clearly spelled out—don’t assume inferences will be made. Theoretical discussions on the benefits of saving or jargon-filled updates are likely to alienate rather than engage your employees. The more customized you can make your messaging based on employee demographics, the better.

Provide engaging tools: Attention spans are short, and time is tight. Give employees actionable, useful resources such as checklists, timelines, FAQs and tip sheets. Bundle information into annual enrollment, but also send reminders throughout the year. Consider contests, quizzes and fun live or virtual events to bring financial wellness topics and resources to life. Leverage internal resources such as marketing, social media and communications teams and employee resource groups.

Set specific goals and measure progress: Share your goals with your employees and how you came up with them. Tell them you’ll be checking in to measure progress and get feedback. If people feel that they are part of something bigger than themselves, they might be more incentivized to be engaged. Note that their individual work on financial wellness helps your organization thrive and grow stronger, as employees feel more empowered and in control of their financial life.

Offer multiple engagement points: Providing a phone number and email address for employee questions is just a starting point. What about offering texting, a chat feature on your intranet or even a benefits app? Can you create a dedicated channel on internal communications platforms such as Salesforce, Slack or similar tools that will help to meet employees where they are? As offices open back up, consider having an information table at employee happy hours or meetings—real-life interaction doesn’t need to be limited to an annual benefits fair.

As plan sponsors look to assess their programs’ impact, measurement tools might include:

  • Employee surveys: Brief “spot surveys” as employees engage with financial wellness programs can create a feedback loop for continual improvement. The key is to not only create the survey mechanism, but to implement a robust follow-through process that ensures that survey feedback is regularly reviewed and acted upon.
  • Digital metrics: Having staff or a consultant or service provider capable of monitoring, analyzing and reporting on web- and email-based metrics is almost table stakes in today’s digital environment, at least for larger organizations. These metrics can help you assess which communication programs and tools are getting attention and which ones are lagging. Again, a feedback loop is crucial, so the data is not reported in a silo or seen as an isolated function. Ideally, all key stakeholders should be aware of topline metrics and be empowered to take action to improve them.
  • Service provider reporting: What can your wellness providers offer to you and your participants in terms of a feedback mechanism? How can needed improvements or enhancements be communicated to them and what will the process be for ongoing monitoring and action? Having numerous participants ask the same question, run into the same problem or point of confusion, or otherwise hit roadblocks in program offerings, without being addressed, will continue to negatively impact engagement and outcomes.

Recent ongoing research from DCIIA’s Retirement Research Center and Commonwealth highlights issues specific to low- and moderate-income employees in light of COVID-19. Many of them are struggling with health issues, income losses and increased debt, and have tapped into (or tapped out) their emergency savings. Some are borrowing from friends and family, racking up expensive credit card debit or selling possessions to get by. Recordkeepers and plan sponsors can help these plan participants move in the right direction by:

  • Providing employee hardship funds;
  • Connecting employees with guidance on repaying debt;
  • Encouraging intermittent saving where their budget allows; and
  • Setting up emergency savings products through their platforms so that participants can begin saving for emergencies when they are able to do so.

Be sure that you are considering the full spectrum of your employee population as you assess and implement financial wellness offerings—often the decisionmakers are far removed from many of their employees when it comes to salary, benefits, education and day-to-day work experience. An effective and inclusive program will speak to—and benefit—everyone.

Peg Knox is the chief operating officer (COO) of the Defined Contribution Institutional Investment Association (DCIIA) and is a former plan sponsor. Additional resources on this topic are available in DCIIA’s Resource Library.

This feature is to provide general information only, does not constitute legal or tax advice and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services Inc. (ISS) or its affiliates.
Ask the Experts June 29, 2021

Does the 10% Premature Distribution Penalty Apply to Roth Conversions?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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“Our 403(b) plan allows for both Roth contributions AND Roth conversions. We have an active employee who is 30 years old who wishes to make a Roth conversion. She realizes that she is subject to ordinary income tax on the amount of the conversion, but she wanted to know if the 10% premature distribution penalty applies to the conversion. What say the Experts?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

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We’ll get to what the Experts say in a moment, but this is a great opportunity to point out that sometimes it takes a very careful reading of the Code/Regs to find your answer.

Case in point: Section 402A(c)(4), which is the Code Section that ostensibly addresses this question. Let’s look at subparagraph (A) (boldface text reflects the Experts emphasis):

(4)Taxable rollovers to designated Roth accounts

(A)In general

Notwithstanding sections 402(c), 403(b)(8), and 457(e)(16), in the case of any distribution to which this paragraph applies—

(i)there shall be included in gross income any amount which would be includible were it not part of a qualified rollover contribution,

(ii)section 72(t) shall not apply, and

(iii)unless the taxpayer elects not to have this clause apply, any amount required to be included in gross income for any taxable year beginning in 2010 by reason of this paragraph shall be so included ratably over the 2-taxable-year period beginning with the first taxable year beginning in 2011.

Any election under clause (iii) for any distributions during a taxable year may not be changed after the due date for such taxable year.

So, clearly, a rollover to a Roth account is NOT subject to the 72(t) 10% premature distribution penalty. But, is a Roth conversion within a 403(b) plan a rollover? Let’s read on:

(B)Distributions to which paragraph applies

In the case of an applicable retirement plan which includes a qualified Roth contribution program, this paragraph shall apply to a distribution from such plan other than from a designated Roth account which is contributed in a qualified rollover contribution (within the meaning of section 408A(e)) to the designated Roth account maintained under such plan for the benefit of the individual to whom the distribution is made.

OK, so for a rollover of a distribution from any applicable retirement plan (of which a 403(b) is one) that includes a Roth account, paragraph (4) (waiving the 10% premature distribution penalty) shall apply. So we’re getting closer; it looks like that this language would apply to same-plan rollovers to Roth, but it is not 100% clear as to whether a conversion of amounts that are not otherwise distributable from the plan (as would be the case here), which is more akin to a transfer than a rollover, satisfies this definition. However, if you read on to clause (E), the answer becomes clear:

(E)Special rule for certain transfers

In the case of an applicable retirement plan which includes a qualified Roth contribution program—

(i)the plan may allow an individual to elect to have the plan transfer any amount not otherwise distributable under the plan to a designated Roth account maintained for the benefit of the individual,

(ii)such transfer shall be treated as a distribution to which this paragraph applies which was contributed in a qualified rollover contribution (within the meaning of section 408A(e)) to such account, and

(iii)the plan shall not be treated as violating the provisions of section 401(k)(2)(B)(i), 403(b)(7)(A)(ii),[1] 403(b)(11), or 457(d)(1)(A), or of section 8433 of title 5, United States Code, solely by reason of such transfer.

Bingo! It is now clear that all in-plan Roth conversions are indeed the type of “distribution” under clause (B) to which paragraph (4), which waives the 10% premature distribution penalty, would apply. Thus, Roth conversions are NOT subject to the 10% premature distribution penalty under Code Section 72(t) even though such conversion are subject to ordinary income taxes. However, it takes a careful reading to uncover the Code citation to support this fact, as is sometimes the case!

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. 

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

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