Products June 22, 2020

TIAA Offers Nonprofits a Student Debt Relief Program for Employees

Together with Savi, TIAA has launched a program that helps employees reduce their monthly payments and qualify over time for the federal Public Service Loan Forgiveness (PSLF) program.

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TIAA is working with social impact technology startup Savi to make it easier for nonprofit institutions to offer a meaningful student debt relief solution to their employees.

The companies launched a student debt solution designed to help employees of nonprofit organizations reduce their monthly student loan payments immediately, and to qualify over time for relief from the balance of their federal student loans by enrolling in the federal Public Service Loan Forgiveness (PSLF) program.

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TIAA and Savi conducted a pilot of the solution from July through March with seven nonprofit institutions—four in higher education and three in health care. Within that period, employees who signed up for the solution were on track to save an average of $1,700 a year in student debt payments. Some employees’ payments were cut in half. In addition, employees had an average projected forgiveness of more than $50,000 upon successful completion of 120 months in the PSLF program. The total projected forgiveness from the pilot exceeds $53 million to date.

TIAA notes that, historically, the PSLF program has presented challenges for some borrowers, as many have had difficulty understanding the rules and managing the paperwork. In fact, 98% of PSLF program applicants have been rejected for not meeting program requirements or due to missing or incomplete information on a form. More than half of borrowers miss annual deadlines that are key to receiving loan forgiveness.

Individuals can sign up for the solution by answering a few simple questions. From there, the Savi software calculates potential savings with an income-driven repayment plan and determines whether the person may qualify for a forgiveness program. The Savi algorithm takes into account an individual’s specific circumstances, including their family and tax situation, and suggests a solution that best fits their needs. The solution acts like a concierge, helping the individual to stay in compliance with the recurring paperwork requirements of the PSLF program and reducing errors. Savi’s customer success team is also available to answer questions and act as an advocate if needed.

Employees of nonprofit institutions and their family members are also able to get an initial analysis from the tool at no cost.

TIAA is offering Savi’s solution to client institutions as a turnkey service to help them significantly expand the financial wellness benefits available to their employees.

This solution offers a client-friendly deployment model that requires no information technology (IT) involvement by the institution and enables the client to control the communication channels and frequency. A communications toolkit is provided to enable institutions to communicate information in the way that works best for them and their employees.

“Managing debt is a key step toward achieving financial wellness and it is why we are offering this solution,” says Doug Chittenden, executive vice president and president of Institutional Relationships at TIAA. “There has never been a more important time to help keep our nonprofit participants on track toward student debt forgiveness. Health care workers on the front lines of this crisis and university faculty and staff focused on administering distance learning programs are under tremendous pressure already. Together with Savi, we’re proud to help enable our participants and other nonprofit employees to take advantage of the significant benefits of the federal PSLF program.”

Savi Co-Founder Aaron Smith said, “Even the most diligent student loan borrowers face challenges navigating the confusing maze of federal student loan repayment and forgiveness options. After seeing the incredible impact during our pilot with TIAA, we are excited to expand to the broader TIAA community of client institutions and their employees.”

Investing June 22, 2020

Do Standard Glide Path Illustrations Obscure Key Information?

The minimum and maximum fixed-income allocations of 2050 target-date funds range between 1.5% and 19.9%, respectively, according to MFS.

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During a recent conversation with PLANSPONSOR, Joseph Flaherty, MFS chief investment risk officer and director of quantitative solutions, and Jessica Sclafani, defined contribution (DC) strategist, described the motivations behind their firm’s latest white paper.

The analysis is titled “Rethinking the Role of Fixed Income Along the Retirement Savings Journey: From Theory to Practice,” and it argues that target-date fund (TDF) risk profiles should align with evolving participant objectives along the retirement savings journey. As Sclafani and Flaherty explained, a big part of making this a reality will be doing a finer analysis of a TDF series’ fixed-income holdings.

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With this in mind, Sclafani and Flaherty said, the MFS philosophy is to take an inverse approach relative to the normal way of discussing TDFs.

“A typical glide path illustration highlights the level of equity along the path, which reflects the defined contribution plan industry’s historical focus on the accumulation phase of the retirement savings journey,” Sclafani said. “To shine a spotlight on the fixed-income allocation within a glide path, we took the current glide path paradigm and turned it on its head. When viewed this way, we typically see an upward slope in the glide path as participants’ fixed-income exposure increases while the number of years until retirement declines.”

According to the MFS analysis, when “flipping the glide path” this way, it becomes much more apparent that there are wide dispersions in terms of any given TDF series’ fixed-income allocations at the start of the glide path—i.e., when participants are young and are just starting out. Indeed, the average fixed-income allocation for a participant invested in a 2050 target-date fund is approximately 9.1%; however, the minimum and maximum allocations range between 1.5% and 19.9%, respectively.

Flaherty noted that, while a larger fixed-income allocation in far-dated vintages might feel “conservative,” and therefore more comfortable for some sponsors, it can potentially inhibit participants’ ability to grow and compound their savings.

According to Sclafani and Flaherty, during the accumulation phase of the retirement savings journey, which includes participants in their early 20s through mid-40s, the most important objectives are to save as much as possible, maximize employer matching contributions and grow these savings through compounding investment returns. Accordingly, they argued, participants in this phase should have minimal fixed-income exposure and seek to maximize capital appreciation through the higher growth potential of equity and other higher-returning asset classes.

“With a long time horizon until retirement, these participants have time to recover from market downturns and can generally withstand the greater volatility associated with more risk exposure,” Flaherty said. “A higher allocation to equities in this phase can help build a larger retirement account balance, which can allow for participants to potentially take less risk later.”

After participants reach their mid-40s, Sclafani and Flaherty proposed, they enter what should be considered the “consolidation” phase, which is then followed by the decumulation phase at retirement. They said they often hear the argument that participants nearing and in retirement should continue to hold a significant allocation to return-seeking assets because they need a higher level of return for their savings to last through a longer lifespan. It is also commonly argued, they noted, that participants who have not saved enough must maintain a return-seeking posture, which implies that late-career and retired participants can invest their way out of suboptimal savings behavior.

“We believe that longevity risk can be managed in a number of different ways and that higher equity allocations are not necessarily the most effective way to accomplish this,” Sclafani said. “Furthermore, participants who have been unable to save enough are generally more financially fragile and have less ability to weather a market downturn, making a high-equity allocation late in the retirement savings journey potentially even less appropriate.”

After setting out this framework, the MFS analysis also explains the importance of carefully considering fixed income as the diverse and dynamic asset class that it is. Construction of the glide path should demarcate and define the relative roles of core bonds, global bonds, emerging market debt, high-yield bonds, short-term bonds and Treasury inflation-protected securities (TIPs), at the very least.

“While participants do not always have exposure to every building block and the relative size of the allocation depends on the participant’s position along the retirement savings journey, we feel that this diversified approach to fixed income exposure provides additional levers that can be employed to meet multiple objectives,” Flaherty said.

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