Be a D Student...
When the COVID-19 pandemic hit in 2020, it created uncertainty, intense financial need and volatility with unprecedented speed. “Secure” jobs vanished overnight, childcare needs changed and medical expenses mounted. The financial impact was unanticipated, immediate and lasting. It was also intensely personal. Parents of young children, the sandwich generation, service industries such as hospitality and entertainment, essential workers: Every member of the workforce was impacted in different and often profound ways. Plan participants needed ways to make ends meet, and many looked to their retirement savings.
The CARES Act provided America’s workers with expanded access to their retirement funds, but what about the aftermath? Workers impacted by COVID moved quickly to take advantage of expanded loan availability, suspend repayments on existing and new loans and take withdrawals from their accumulated savings.
A special feature of CARES Act withdrawals is the ability to repay them, which sounds promising. However, it’s unclear how many participants will have the financial wherewithal or the discipline to make a repayment within the three-year window. In all likelihood, most of those withdrawals will never be repaid.
Can we help repair the incalculable damage to the retirement system? How do we make sure that retirement information is accessible and understandable and that retirement is achievable?
Perhaps it’s time to return to the beginning. Building, and rebuilding, a secure retirement is best done on a secure foundation. To get an A+ in retirement design, focus on being a D student:
Data (leverage it)
The more information you have, the more effectively you can stay in touch with and support your participants. Determine what data you already have and what you want to gather. Consider how best to solicit, store and utilize it.
- Do you have up-to-date contact information for inactive employees?
- Has every participant designated a beneficiary?
- Do you have current phone numbers and email addresses to facilitate contact? Email addresses often stay current longer than residential addresses and cell phone numbers are more portable than land lines. Both pieces of data can be vital in avoiding the challenges associated with missing participants.
Demographics (consider them)
Every participant is different, but knowing some basics about your overall workforce and considering common goals at various life stages can provide helpful insights into the needs of your employee population.
- Are your employees internet savvy? Is technology an integral part of their work activities? Are they living in areas with reliable internet access?
- What are their competing priorities? Are they at an age where it’s typical to have student loan debt? Buy a home? Start a family? Care for aging parents? Consider retirement?
- What’s the typical level of education for your workforce?
- Do some or all of your participants face literacy or language issues? How does impact the way you need to communicate?
Design (do it thoughtfully)
As you review existing plan provisions and consider future plan design changes, consider whether you are empowering participants for success.
- Does the company match design encourage participants to save?
- Is the investment line-up well aligned to the employee population? Is the number and type of investment options adequate, or overwhelming? Are there low stress choices for the novice investor?
- What loan and withdrawal options are available? Do they provide reasonable access, without encouraging excessive leakage?
- Are Designated Roth contributions or Roth conversions offered?
- Is there an after-tax feature for participants who want to save more than is permitted on a pre-tax basis?
- Can participants “set it and forget it” by scheduling investment updates and contribution increases in advance?
- Are plan communications designed with the plan’s population in mind?
Default contributions (enable them)
Make enrollment easy for those who are ready to save.
- Automatically enroll eligible employees in the plan
- Consider building in a periodic rate increase to help participants build their nest eggs even if they don’t take an active role.
- Follow up to engage employees who were automatically enrolled.
- Make election updates easy for participants who decide to get involved.
- If you don’t enable automatic enrollment, send reminders to employees who are not yet participating.
Designate a Qualified Default Investment Alternative (QDIA) (but don’t stop there!)
Make sure your plan includes Qualified Designated Investment Alternatives (QDIA) for participants who don’t make an investment election. Follow up to inform them about fund options and how they can take control of their investments.
- Offer easy access to investment information, beyond required notices.
- Provide educational material about investment options and risk tolerance.
- Provide access to modeling tools that show the impact of returns on future account balance.
- Offer periodic rebalancing so that participants who want to take more ownership of their investments can do so easily and automatically.
Disclose fees (and make it understandable!)
- Provide robust fund information in your annual Fund Fee Disclosure document.
- Use clear language that’s easy to understand. When participants are informed, they’re empowered to make better choices.
- Make the information readily accessible on your website.
Distributions (design and manage them)
Consider which distribution options are available and to which populations.
- Can participants take installments?
- Is there an annuity purchase option? If so, is it communicated clearly?
- Are withdrawals available to terminated or retired participants?
- Are there decision support tools available to help participants model the impact of various distribution elections or consider the pros and cons of loans vs. withdrawals?
Need help reviewing and assessing your Defined Contribution Plans? Conduent has administered Defined Contribution Plans for more than 30 years. We pair our deep experience and knowledge with talented people and proven processes to guide our clients to the right solutions for their organizations and workforces.
About the AuthorMore Content by Rachel Kugelmass