The attached article, prepared by the American Academy of Actuaries, has links to various articles as well as a longevity illustrator which is very interesting and available by clicking on the link below.

The calculator, developed by the American Academy of Actuaries and the Society of Actuaries, is one example of a tool for educating individuals about future life expectancies, www.longevityillustrator.org.

There has never been a greater opportunity for qualified plan professionals to assist retirement plan participants in planning for their retirement income needs. In addition, the regulations allow for significant features to be adopted by Plan Sponsors which would not only enhance the ability for participants to save for their retirement but manage the various risks in retirement.

In conclusion, targeted and effective plan designs can facilitate favorable outcomes despite these realities. Financial education is of value in helping individuals to make savings and investment decisions. However, not all individuals will have access to proper education or know how best to use it. Therefore, it is important to consider how plans can be designed to help retirees achieve the goal of securing their retirement.

We are starting a new year and now is a great time for Plan Sponsors and their Financial Advisors to evaluate how well the retirement Plan is achieving the income replacement goals of the Plan Participants. Most recordkeepers providing services to Plan Sponsors have excellent tools for Participants and reports for Plan Sponsors to review.

In the first quarter of 2022, the new DOL regulations will become effective requiring monthly income to be illustrated on Participant statements. For many Participants this will have a significant impact because the monthly income amount illustrated will be much smaller than the monthly income the participants will need when they decide to begin withdrawing funds for retirement.

This creates a significant opportunity for Plan Sponsors and their Financial Advisor to create ongoing Participant education and communication programs in addition to reviewing Plan features which are designed to increase Participant contributions and retirement income.

The attached article by T. Rowe Price outlines four key considerations for Plan Sponsors:

What role do employers want to play in assisting both current and former Participants in planning for retirement

What range of advice and planning services to make available to Participants

Understanding one size does not fit all for every Participant, therefore different products and services may need to be made available

Employers can assist those near retirement by providing information on various topics Participants will need to navigate in retirement

The private sector retirement industry has created wonderful tools, and resources and regulations favorable to Plan Sponsors are in place. This creates the opportunity for very robust services and products to be offered to Participants. The end result will be a very successful retirement plan and employee benefit.

The Cerulli white paper produced in March 2021 contains very interesting information regarding qualified plan litigation trends, plan sponsor top priorities, in-plan retirement income products, and cyber security.

It is interesting the two highest priorities for plan sponsors almost across all plan sizes is, improving overall financial wellness of employees and maximizing participant savings by increasing participation and contribution rates. Add these priorities to the new DOL cyber security guidelines and increased litigation, and the plan sponsor need for assistance has never been greater. Qualified plan professionals can assist plan sponsors in meeting all these needs.

The Pooled Employer Plan (PEP) was born on January 1, 2021, as a result of the Secure Act, passed in December of 2019. The intent of Congress was to provide an avenue for business owners to sponsor a retirement plan with the lowest amount of burden and fiduciary responsibility possible. TRG Fiduciary Services is working with several PEPs and has found the intent of Congress to be accurate.

The attached PEP Assessment Tool is designed not only to inform, but to assist in evaluating service providers offering services to the PEP and whether or not a PEP is in the best interest of the participants who would participating in a retirement plan which is part of a Pooled Employer Plan. It is too early to tell if the Pooled Employer Plan will be the retirement plan of the future, but I believe there is a good possibility it will be.

The attached 2021 EBRI Survey of 3,017 retirement workers and retirees brings to the surface several important issues.

Key Findings:

First, the workers who were not affected by the pandemic are still confident they will have enough money to retire. Those who were affected by compensation reduction, layoff, or furlough are not as confident. As a result, Plan Sponsors who had employees affected should evaluate their participant education programs to determine the most of effective way to assist these participants in getting back on track to reaching their retirement income goals.

Second, the survey also indicated workers were very interested in retirement income solutions. The workers surveyed were very interested in shifting the longevity risk, cognitive risk, withdrawal rate risk, and market volatility risk to an insurance company. This creates an opportunity for retirement professionals to assist Plan Sponsors in evaluating the various options available to accomplish this as well as educational programs for participants to assist them in choosing the correct product to meet their needs.

Third, competing financial priorities have a negative impact such as saving for a child’s education or non-mortgage debt.

Fourth, most of the individuals surveyed said they stayed the course regarding contributions and investments, some even increased their contributions.

Fifth, 4 in 5 workers who are offered a workplace retirement savings plan are satisfied with the benefit.

In conclusion, the survey has more statistical information which can prove valuable information for enhancing retirement plan features and developing participant education programs. The survey also validated that the private sector retirement system is working.

With millions of US households personally directing their retirement savings, the Investment Company Institute (ICI) has sought to track retirement savers’ actions and sentiment. The attached report, the 13th in this series, summarizes results from a nationally representative survey of Americans aged 18 or older. The survey was designed by ICI research staff and administered by NORC at the University of Chicago using the AmeriSpeak® probability-based panel. This report presents survey results that reflect individuals’ responses collected during November and December 2020.

The survey polled respondents about their views on defined contribution (DC) retirement account saving and their confidence in 401(k) and other DC plan accounts.

Survey responses indicated that Americans value the discipline and investment opportunity that 401(k) plans represent and that individuals were largely opposed to changing the tax preferences or investment control in those accounts. A majority of respondents also affirmed a preference for control of their retirement accounts and opposed proposals to require a portion of retirement accounts to be converted into a fair contract promising them income for life from either the government or an insurance company

(Amherst, NY, January 14, 2021) Jeff Atwell has successfully completed the training, validation and testing necessary to be a Registered Fiduciary. The Registered Fiduciary (RF™) Certification identifies financial professionals and organizations as competent fiduciaries that have achieved pertinent educational qualifications and licenses, learned required skills, and have passed a background check.

The RF™ award to Jeff Atwell recognizes particular skills in the area of Retirement Services. In addition, Jeff Atwell provides 3(16) Fiduciary Services through TRG Fiduciary Services.

In acting as a Registered Fiduciary Jeff Atwell is committed to always acting in the best interest of clients, using the skills, ethics and focus on the client needs that the Certification represents.

“At a time when the public concern has been elevated by years of financial excesses and scandals, the RF™ validation process offers comfort in the knowledge that our firm has been found worthy of this distinction” said TRG Principal, Ken Neward, adding “We have always been dedicated to our clients and this award gives us the independent confirmation of this policy.”

TRG Fiduciary Services, LLC, offers 3(16)/402(a) Named Fiduciary Services for single employer plans and PEP’s.

A significant portion of a retirement plan's fiduciary responsibility can be outsourced to designated third parties. At TRG Fiduciary Services (TRGF) we offer one of the most flexible and comprehensive solutions available in the marketplace, which allows us to take on as much of the risk and responsibility of sponsoring a retirement plan as is allowed by ERISA.

The Registered Fiduciary Certification is based on the 2010 Fiduciary Standards of the Fiduciary Standards Board and validated by Dalbar, Inc., the independent expert.

The Fiduciary Standards Board is a not-for-profit (501(c)(3)) organization established in September of 2000 to develop and advance standards of care for investment fiduciaries, which includes trustees, investment committee members, brokers, bankers, investment advisers, money managers, etc. The Fiduciary Standards Board is independent of any ties to the investment community and therefore positioned to be a crucible for advancing fiduciary standards throughout the industry and to the public.

Dalbar, Inc. is the financial community’s leading independent expert for evaluating, auditing and rating business practices, customer performance, product quality and service. Launched in 1976, Dalbar has earned the recognition for consistent and unbiased evaluations of investment companies, registered investment advisers, insurance companies, broker/dealers, retirement plan providers and financial professionals. Dalbar awards are recognized as marks of excellence in the financial community.

To learn more about how Jeff Atwell and TRG Fiduciary can help you reach your retirement goals, visit www.trgfiduciary.com.

Recently, the DOL sent to the OMB the proposed Fiduciary Advice Rule. An understanding of when a firm and its representatives provide investment advice and thus act as fiduciaries is important.

In the case of a Plan, the fiduciary is subject to the fiduciary provisions of Section 404 of ERISA and the prohibited transaction provisions of Section 406 of ERISA and Section 4975(c)(1) of the Code. The rule when finalized would reinstate the DOL’s 5-part test for Investment Advice. This is outlined and discussed in the attached article by the Groom Law Group.

If an advisor is deemed to be a fiduciary in regard to a qualified plan or IRA, the proposed class exemption would allow investment advice fiduciaries to provide a wider range of retirement options so long as they abide by the DOL’s Impartial Conduct Standards as outlined in the article. These standards align with those found in the Securities and Exchange Commission’s Regulation Best Interest (Reg BI), which went into effect on June 30, 2020.

In conclusion, as stated in the article, the Exemption is another significant development in the DOL’s quest to exercise greater influence over firms and their representatives to assure that they make recommendations that are in the best interest of Plan participants and IRA holders.

The attached study by the Savings Preservation Working Group provides great insight into the retirement plan leakage problem. The private retirement system is key to the majority of working Americans retiring with dignity.

As illustrated in the white paper linked below, leakage is a big reason individuals who have participated in a retirement plan for years have not accumulated more in retirement assets. This provides a tremendous opportunity for retirement plan professionals to work with plan sponsors to implement procedures or plan features which will help preserve a participant’s retirement account.

Leakage has been a big issue for many years, however, as stated in the study, there may be legal, policy or operational improvements that could reduce cash-outs and preserve more retirement savings.

As 2020 draws to a close, it’s a great time for qualified plan sponsors to reflect on their goals and objectives for sponsoring a retirement plan. In addition, they should reflect on whether the plan is providing the participants with the best means possible to reach their retirement income goal.

This is a great time to consider changes to the plan, since the Cycle 3 restatement cycle has started, which will require all plans to be restated. I have prepared the following list of reflection points to think about and consider. The attached article also will provide additional insights.

Reflect on how the Plan’s service providers supported your company’s and participant’s needs during the pandemic.

Reflect on the Plan features – were there Plan features participants could use to assist in supporting their financial needs?

Reflect on the Plan features which have been beneficial to participants and which may need to be extended past 12/31/20.

Reflect on Plan features which may create an administrative burden on payroll or HR staff, such as eligibility, entry dates, and the definition of compensation.

Reflect on the safe harbor provisions being utilized or not being utilized – for calendar year plans, changes for 2021 have to be announced by 12/1/20.

Reflect on the Plan provisions which could be implemented to assist participants in getting back on track to reach their retirement income goals.

Reflect on any barriers participants might have to reaching their retirement income goals, such as too many investment choices, or no access to financial wellness or investment advice resources.

Reflect on how to effectively communicate with participants utilizing technology.

Reflect on the governance of the plan by the Plan fiduciaries – do the fiduciaries of the Plan have the time, knowledge, or inclination to fulfill their responsibilities?

Reflect on whether to retain or outsource fiduciary responsibility to a qualified independent third party fiduciary.

The second key element in “Defining a Retirement Plan Standard of Excellence” is Inspiring participants to save for retirement.

There are several methods through which this can be accomplished: automatic enrollment, auto escalation, financial wellness programs, investment advice, and managed accounts. Statistics prove the primary reason participants are not on track to reach their retirement income replacement goal is because they are not saving enough.

The Vanguard white paper we've linked below outlines how changing the matching formula to encourage a higher salary deferral rate could be a good alternative to automatic enrollment or automatic escalation features. Be aware, if the plan is utilizing one of the safe harbor options, the matching formula will need to be designed within the safe harbor regulations. Otherwise the plan may be subject to non-safe harbor discrimination tests.

In conclusion, this is a great time to begin discussions with plan sponsors regarding this concept so changes can be implemented and communicated to participants going into a new year. In addition, the IRS restatement cycle has begun. This requires all 401(k) plans to be restated which creates a perfect opportunity to make changes and enhancements.

Our mission to "Define a Retirement Plan Standard of Excellence" is reflected in our past blog posts, and the attached white paper from Russell Investments addresses several key elements of the Standard.

The second element of the Standard is to inspire participants to save for retirement. As pointed out in the white paper, too few participants are enrolled compared to the number of participants who are eligible to participate. In addition, their savings rate is not high enough to reach the appropriate income replacement goal at retirement.

The document restatement cycle will begin in 2021; therefore, this would be a perfect time to review the plan provisions and consider implementing automatic enrollment and automatic escalation provisions in the restated plan document. Auto features tie in nicely with the 7 attributes for defined contribution 401(k) plan excellence outlined on page 14 of the document.

The white paper outlines the responsibilities of governing the qualified plan; you can see all the details on page 24. It is important for plan fiduciaries to understand their roles and responsibilities and decide if they want to retain or outsource those responsibilities to a qualified third-party expert. A properly governed plan will create the greatest opportunity for the participants to reach their retirement income goals.

Recently, the Secure Act was signed into law, which will require all participant statements to reflect a projected monthly income for the participant. As you can imagine, there are many ways to calculate a monthly income amount. As a result, the DOL recently issued a proposed regulation which outlines the assumptions all recordkeepers have to use in order to properly illustrate the projected monthly retirement income amount. Up until now, only lump sum values were shown on participant’s statements, which mislead participants on how long their retirement assets would last once withdrawals began. In my opinion, this is going to create a significant opportunity for qualified plan professionals to provide participants with the resources and knowledge to reach their retirement income goal.

In conclusion, the white paper provides substantial insight on how to design a qualified plan to “Define a Retirement Plan Standard of Excellence.”

Now more than ever, retirement plan professionals and retirement plan sponsors should focus on implementing processes and procedures to assist the participants covered by the qualified retirement in saving for a dignified retirement. The attached DCIIA article outlines five potential barriers to successful retirement outcomes.

Five potential roadblocks to successful retirement outcomes are:

Missing participants

401(k) loan leakage

Movement of assets out of plans via rollovers

Participants leaving the plan at retirement

Obstacles to in-plan annuities.

*"While there may be other barriers to better retirement outcomes, recognizing the above five is a good first step to improve retirement readiness for America’s defined contribution plan participants. We encourage plan sponsors and their service providers to discuss actions that can be taken to address these administrative, operational and inertia-based challenges. Having conversations with service providers and industry associations, as well as collaborating with other like-minded plan sponsors, can go a long way to help remove some of these barriers, thereby making the participant’s road to a successful retirement as smooth as possible. Solving these challenges is not “all or nothing” – but over time, if retirement plan professionals and plan sponsors commit to taking incremental action to address them, we can make real progress toward enabling America’s workers to retire with financial security." (from Five Practical Barriers to Better Retirement Outcomes, DCIIA) *

As we have discussed in past blog posts, our mission is to Define a Retirement Plan Standard of Excellence. Two of the key elements in Defining a Retirement Plan Standard of Excellence are meeting the goals and objectives of the plan sponsor and inspiring participants to save for retirement. These two elements can be accomplished and enhanced through plan design. The attached article, Design Matters, by DCIIA points out three areas to accomplish this.

Design Matters: Selected Findings

Automatic plan features work

The current DC system can do better, even without additional legislative or regulatory action

Limiting asset “leakage” works

Each one of the areas discussed in the article provide important talking points for retirement plan professionals as plan sponsors begin to evaluate their plans and the impact that the COVID pandemic has had on their retirement plan. As the country emerges from the COVID pandemic, the time could not be better to prove the private retirement system provides a much better resource for participants to reach their retirement goals.

Discussing with plan sponsors and implementing the 3 topics discussed in the DCIIA article will go a long way towards proving the private retirement system is better than any state or federally run private sector retirement plan.

There has been a debate for several years as to whether or not the private sector retirement system provides adequate retirement benefits for employees employed by private sector companies. Over 28 states are in the process of developing a state sponsored plan and 12 states have implemented a state sponsored plan. As someone who has worked with private sector retirement plans for over 40 years, it is my opinion that the private sector retirement system does and will provide the best means for private sector employees to reach their retirement goals. The Secure Act is the most recent legislation to be enacted which will provide a means to move closer to this goal. Following are some key points which, in my opinion, give the private sector retirement system an advantage over any state sponsored plan.

Plan Design

State sponsored plans do not provide consulting to assist a business owner in designing a plan to meet their specific goals and objectives for their company or employees. A plan in a box cannot meet the needs of every employer or, more importantly, the needs of the individual employees. Professionals working in the private sector provide consulting to the business owner assisting them in understanding all the options available and employee needs in order to implement a plan to benefit the employer and employees.

Participant Outcomes

State sponsored plans provide no resources for the participants, other than a website. State sponsored plans do not offer employee education meetings, financial wellness programs, investment advice, or resources to assist a participant in managing their retirement assets. Qualified plan professionals providing services to private sector retirement plans offer and provide all of these tools and resources to inspire participants to save for retirement. The Secure Act began the process of requiring Plan Sponsors to provide information to participants regarding the amount of monthly income to expect at the Plan’s designated retirement age, as well as a fiduciary safe harbor for Plan Sponsors who desire to provide annuity benefits to the Plan participants when they reach retirement.

Governance

For the most part, state sponsored plans are non-ERISA plans and, as a result, eliminate the regulatory responsibility of adhering to ERISA regulations required by an ERISA private sector retirement plan. One might ask the question: is not being subject to ERISA really in the best interest of the participants and beneficiaries covered by the plan? In a state sponsored plan, the employer still retains the responsibility of submitting timely and accurate participant contributions to the state retirement plan. Will a state protect the rights of participants and beneficiaries to the same level the Department of Labor, EBSA, has protected participants for decades? Retirement plan professionals provide the resources for private sector plan sponsors to meet their fiduciary responsibilities required by ERISA, as well as the regulatory requirements of the Internal Revenue Code and the Plan Documents. The Secure Act, with the implementation of Pooled Employer Plans, effective January 1, 2021, will provide a private sector business owner a means of sponsoring a plan for their employees without a lot of the complexities associated with a stand-alone retirement plan. Thus, it will be easier for a business owner to offer a retirement plan for their employees, and, more importantly, it will be easier to have a plan designed around their specific goals and objectives and participant demographics.

In Conclusion

Private sector retirements will continue to be the best resource for private sector employers to provide retirement benefits for their employees. With continued favorable legislation, such as the Secure Act, and ongoing innovation, the future success of the private sector plan system is bright.

This Morgan Lewis article does a good job of outlining the provisions of the SECURE Act and the new PEP provisions. As stated in the article, Pooled Employer Plans, or PEPs, will provide an opportunity for a business owner to provide retirement benefits for employees and reduce the amount of fiduciary responsibility associated with sponsoring a stand alone plan. This concept has been around for many years in various forms, formerly known as open MEP’s.

The SECURE Act eliminates regulatory issues and coordinates the IRS and DOL regulations, which have been an obstacle to this type of plan from being utilized in the past. PEPs cannot be adopted until after January 1, 2021, and the DOL still has to finalize the regulations. It will be interesting to see how the DOL interprets the law in writing the proposed and ultimately final regulations.

Based on my experience in this area, there will be many flavors of PEPs in the market place. As a result, it will be very important for retirement plan professionals to be able to discern the difference in the various plans in order to properly advise their business clients on which plan to join, or whether a PEP is even the right choice.

There will be several factors to consider such as:

pricing: The lowest cost PEP may not be the best PEP

service providers: how experienced is the Pooled Plan Provider (PPP) and is the firm qualified to be a PPP? How experienced are the Third Party Administrator and Recordkeeper? Without experienced service providers, operational and compliance defects can occur very quickly

contributions and census: how will contributions and census information be provided to the Recordkeeper and Third Party Administrator

plan design: what benefits and features will be available to meet the business owners goals and objectives

employee education: what resources are available to effectively communicate the benefits of the plan to the participants initially and on an ongoing basis

responsibility: what responsibility and liability the business owner retains.

In the case of an existing plan, it will necessary to preserve the same rights, benefits, and features the current plan at the time the plan was merged into the PEP plan. This is necessary to avoid the anti-cutback rules.

In summary, PEPs will provide a very efficient way for a business owner to provide retirement benefits for employees; however, the plan must always remain in the best interest of the participants and beneficiaries covered by the plan.

The true impact on retirement plans created by Covid-19 and the CARES Act will not be determined for a while. The time has never been better for qualified plan professionals to demonstrate their expertise and value to plan sponsors and participants.

Retirement plan professionals have a great opportunity to assist their plan sponsors and participants in managing the options created by the CARES Act and to develop effective communication with plan participants to assist them in managing their retirement assets prudently.

Services being provided to a qualified retirement plan should be viewed as a professional service and not a commodity. The value of service plan professional provide is more evident now than ever.

Plan sponsors who have elected to engage service providers based on price rather than service and expertise will not receive the proper guidance in managing the options within the CARES Act. The participants will not receive valuable assistance in managing their retirement plan assets.

Listed below is a brief list of services professional, qualified plan service providers can offer to plan sponsors to assist them and their participants in staying on track meeting their retirement goals.

Document Provisions

Review the current plan document provisions to determine if they are appropriate to meet the needs of the participants in this crisis.

Review the provisions of the CARES Act to determine which provisions, if any, will need to be adopted to assist the participants.

Contact the plan’s recordkeeper and third party administrator, if different, to determine the processes required to complete a transaction if the CARES Act provisions are adopted, and to determine the changes to the plan document to reflect the features adopted.

Communicate any changes to the participants, along with the process of requesting a transaction.

Plan Investments

Review the plan’s Investment Policy Statement (IPS) and make sure the processes outlined in the IPS are being followed. This is important now because fiduciaries might be preoccupied with managing business issues created by the pandemic.

If the IPS is not consistent with the steps that need to be taken, make sure to amend the document to reflect the change in monitoring procedures.

If the plan’s investments were selected and monitored in the past based on a prudent process, it is likely that the investments will continue to meet the provisions of the IPS, even though they may have lost a significant part of their value in the market downturn.

If an investment fails to satisfy the monitoring criteria in the IPS, it may be better to wait until after the markets have stabilized before making a change. However, if the investment continues to fail the IPS criteria, appropriate action should be taken to avoid a fiduciary breach for failing to adhere to the criteria of the IPS.

Once the markets have stabilized, review the plan’s investments to determine the investments volatility resulting from the Coronavirus pandemic and document how the investments recovered.

Review the plan’s investments and document they continue to be appropriate based on the demographics of the participants.

Review the plan’s suite of target date funds and evaluate their level of volatility. For example, are the allocations of the TDFs appropriate for the participants who are approaching retirement? That is, should you offer TDFs that have a more moderate or conservative glide path? How did the target date fund recover, especially the 2020, 2025, and 2030 target dates. Document this process – there is current litigation involving TD funds – and there will probably be more in the future.

Review the fixed income alternatives to decide if the plan has an adequate array of fixed income funds so that participants who are seeking to diversify in a more conservative manner have choices.

Plan Participants

Monitoring Participant Actions: Obtaining information from the plan’s recordkeeper on changes in participant deferrals or investments in their accounts. Having the information will be helpful in developing communications with the participants. For example, if there have been very few changes, it could be concluded that participants understand that the market downturn may be temporary. But if there have been significant transfers to cash, additional investment education or other communications should be provided to participants.

Communication with Participants: Consider informing participants the plan’s investments are being monitored, properly diversified, and are appropriate. Encourage participants to stay the course and make informed, not emotional decisions.

Consider implementing or promoting, if one is already available, a Financial Wellness program and other resources to assist participants in recovering and getting back on track to meeting their retirement saving goals.

The Coronavirus, Aid, Relief and Economic Security (CARES) Act was passed into law on March 27, 2020.

The CARES Act contains provisions to allow Plan Sponsors to amend their qualified retirement plan to create additional financial resources for their employees. The loan and hardship provisions of the ACT are optional and not mandatory. As a result, qualified plan professionals have a great opportunity to contact their plan sponsor clients to discuss the provisions and determine the appropriateness of implementing all or some of the provisions to assist their employees through this pandemic.

It is important to check with the recordkeeper the Plan is utilizing to determine how these unique provisions can be implemented. Most recordkeeping systems are set up for traditional loan and hardship provisions and will need to be changed or alternate processes implemented in order to fulfill the participant’s request.

To learn more about the CARES Act, take a look at the FAQs addressed by the American Retirement Association.

Current market conditions will require employers to review the investments in the company sponsored 401(k) plan, creating an opportunity for qualified plan professionals. Qualified plan professionals can assist Plan Sponsors in evaluating a more customized approach to the investments offered to plan participants.

As stated in the article you can download below, customization enables the plan sponsor to create a plan that reflects the unique circumstances, beliefs, and demographics of its own employees. The article outlines the 3 C’s associated with customization: consolidation, control, and cost.

The attached research paper, prepared by Alight, represents a very good comparison of how Plan Sponsors utilize Retirement Plan features and resources to assist employees in improving their financial wellbeing.

The paper indicates how the various areas have evolved over the years. This study solidifies the need for professional service providers, rather than robo service providers, to assist Plan Sponsors in developing participant financial well being programs. Professional service providers, working with qualified Plan Sponsors, have so many tools and resources available to assist Plan Sponsors in reaching the goals and objectives relating to workplace financial wellbeing. The end result will be a successful private retirement system inspiring participants to save for a dignified retirement.

Retirement plan professionals and plan sponsors are continuing to evaluate the provisions of the CARES Act. As this article from Plan Sponsor article indicates, the majority of plans have now elected to adopt some or all of the CARES Act provisions. This creates an opportunity for retirement plan professionals to create added value for plan sponsors and participants who are, or might be considering utilizing the CARES Act options.

Before liquidating any investments, a participant needs to consider the fact that the market has suffered a large decrease. This means that if investments are sold now, the loss is “locked in,” and those funds will not participate in the value increase when the market recovers. The impact on the participant’s ultimate retirement savings is likely to be significant. If a participant has other assets that can be accessed for the financial challenges being faced, it may be a good idea to use those instead, leaving the retirement funds to recover and be there for when they are needed down the road.

If a participant, a qualified individual, elects to take a distribution, they can spread their tax liability over a 3-year period. The participant will need assistance on how to manage their tax liability based on their income needs and income tax rate in the years ahead. For example, a participant took a $36,000 distribution and paid taxes of $12,000 in 2020 and $12,000 in 2021. In 2022, the participant deposits $36,000 back into a retirement plan or IRA, representing a repayment of the $36,000 distributed to them in the Coronavirus-related distribution in 2020. The participant will be able to recoup the taxes paid on their 2020 and 2021 returns and will not need to claim the final one-third of the distribution as income in 2022.

Assume a participant has a vested account balance of $75,000, is a qualified individual, and the plan sponsor has elected to allow for increased plan loans. The participant borrows the $75,000 and elects not to begin making loan payments until 1/1/2021. The $75,000 loan will have to be repaid in 60 months in order to avoid a taxable event. What if the participant cannot afford the loan payments on the $60,000 loan? The loan will be defaulted and income tax will be due on the unpaid loan balance and the participant will incur a 10% excise tax penalty if they are younger than age 59 ½ .

As these examples illustrate a substantial amount of thought needs to be taken into consideration before a participant utilizes their retirement plan assets for their financial needs.

In 2006 the Pension Protection Act added Qualified Default Investment Alternative regulations, QDIA, to ERISA. One of the 3 QDIA alternatives a Plan Fiduciary could choose as a safe harbor investment is a Target Date Fund. As a result, the amount of 401(k) assets being deposited into Target Date Funds has increased substantially over the years. The attached white paper points out some very interesting statistics and surprising facts on how Target Date Funds are being utilized by Plan Participants. This provides an opportunity for retirement plan professionals to assist Plan Sponsors in answering the following questions based on the statistics outlined in the white paper.

What are some questions for plan sponsors to consider?

People may not understand how TDFs are intended to be used. How can employers better educate their workers?

Target date users may need to be reminded of the importance of saving for retirement.

How can employers nudge them in this direction?

Are there better investment options than the current suite of TDFs?

Most people increase equity exposure when changing their investment from a TDF.

How can sponsors help workers determine the right amount of risk for their situation?

January is a great time to mark calendars and ensure you’ve noted and communicated key dates for Plan compliance.

Regulations and Plan documents require a good understanding of the Plan features and the appropriate notices and disclosures. These must be provided to participants on an annual basis.

The attached calendar from Mercer provides a quick resource for various filing and disclosure deadlines for single-employer, tax-qualified defined contribution (DC) Plans with calendar year ends.

Congress recently passed and President Trump signed into law the SECURE Act.

This is a phenomenal opportunity for retirement plan professionals going into 2020. Many of the provisions are already in effect, creating the need to visit with plan sponsors on how the changes will affect their plan or how they can enhance their plan. This will also provide an increased opportunity for participant education when the requirement for monthly income to be indicated on the participant statement goes into effect.

A key element in Defining a Retirement Plan Standard of Excellence is inspiring participants to save for retirement. In my experience, the focus in governing a plan should be on how much income a participant will be able to receive from their retirement assets. In fact, legislation in Congress will require a projected monthly income to be reflected on participant statements if this legislation is passed.

The attached survey conducted by T. Rowe Price confirms more Plan Sponsors are focused on participant’s longevity risk, 42%, than any other factor. This becomes a key factor in evaluating and choosing the Qualified Default Investment (QDIA) in the Plan.

Most participants do not have the time, knowledge, or inclination to make good investment decisions and, as the survey illustrates, emotions play an important role in the participant’s investment decisions. Participant behavioral risk was the second biggest concern of the Plan Sponsors surveyed, 25%. Therefore, Plan Fiduciaries need to evaluate and choose a QDIA which will withstand volatile markets while at the same time achieve the highest retirement income opportunity.

At some point there will be a test of the quality of the QDIA being utilized in the Plan. It is imperative Plan Fiduciaries devote time to properly evaluate the Plan’s QDIA or engage an expert to assist them in doing so.

Continuing our quest to Define a Retirement Plan Standard of Excellence, we would like to continue our discussion about the impact on participant’s retirement savings due to loan leakage.

This recent article by Deloitte outlines America’s $2 trillion retirement loan dilemma. The article articulates various mechanisms to prevent loan leakage, illustrates the impact on individuals, and addresses the increased fiduciary risk associated with loan leakage.

Retirement Plan Sponsors and professionals offering services to qualified plan sponsors should evaluate current loan policies and utilization and take appropriate action, if necessary.

For many years, retirement plan leakage has been an issue resulting in a reduction of assets available for individuals when they reach retirement age.

There have been several studies by the GAO over the years outlining the issue. The attached article summarizes a recent survey of 5,000 retirement plan participants and sheds light on leakage patterns, as well as on the thought process of job changers who are confronted with the challenge of “rolling in” retirement savings from a former employer.

Leakage issues create an opportunity for technology developments and consulting opportunities with Plan Sponsors on how to preserve retirement plan assets as participants change employers or leave employment with an outstanding loan.