PLANSPONSOR Roadmap: Documentation and Communication

Employers that want to keep retirees in their defined contribution plans—and help them draw down assets effectively—must be ready to change both their plan documents and how they communicate with those participants, industry experts said during PLANSPONSOR’s Retirement Tier Roadmap webinar on September 24.

The last of a four-part series, the webinar outlined practical steps plan sponsors can take as their participants approach decumulation.

As more workers rely on DC plans to fund retirement, sponsors face a handful of immediate responsibilities, such as ensuring the plan is structurally able to support decumulation through drawdowns in installments, source-specific withdrawals, distribution flexibility and explaining options in plain language, over and over, through formats people actually use, according to the panelists.

Documentation, Operations

One common hurdle is having outdated plan documents, said Kelli Send, co-founder and senior vice president of financial wellness services at Francis LLC.

She pressed plan sponsors to determine whether they want to retain retirees in the plan—and, if so, to ensure plan rules and recordkeeper systems make staying feasible.

“Your plan needs to be able to offer pre–tax [and] Roth,” she said, describing source-specific withdrawals as essential for tax-efficient income, and noting that she still has clients who do not offer both. She added that many recordkeepers still cannot support “fund–specific” withdrawals online, a friction point that can push retirees to move their assets into individual retirement accounts.

Retirement tier solutions also often involve new investment products, such as managed payout funds, income-oriented target-date funds or in-plan annuities. The solutions require fiduciary oversight, Send said, noting that “retirement tier” belongs in the plan’s investment policy statement when it introduces an investment vehicle for income.

Employers do not have to overcomplicate things, she advised, but their investment policy statements should describe how income products will be evaluated, including cost, performance relative to objectives and the financial strength of providers.

“It’s not about need or beating [a benchmark],” she said. “It’s: Do you have a process of monitoring?”

Keeping Communication Simple

Communication remains the bigger challenge, panelists agreed. Karen Witham, vice president of committees and communications at the Defined Contribution Institutional Investment Association, urged sponsors to avoid jargon and lead with participant benefits.

“The worst thing that happens if you spell things out is that you’re telling someone something they already know,” Withham said. “Conversely, if you assume there’s a knowledge or an understanding that isn’t there, there’s going to be a knowledge gap.”

Terms like “decumulation” can easily be replaced by terms more meaningful to a retiree, such as: monthly income and financial security. She suggested building employee resource groups for near-retirees and enlisting internal departments such as HR and IT to help with outreach and communication about different topics.

According to the panel, participants want to receive guidance and continue their relationship with plan sponsors as retirement nears.

Baby Boomers and members of Generation X report declining financial wellness scores compared with prior years, said Deborah Dupont, retirement research director at LIMRA’s Secure Retirement Institute, during the webinar. Roughly one-third of Boomers and half of Gen Xers say they are unsure whether they can retire on time.

With the decline in younger workers’ expectations that Social Security will play a significant role in retirement, workplace benefits have a significant impact on workers preparing to retire, Dupont said.

“We have a good opportunity here for both education and to help these folks make some of these holistic financial and retirement-related decisions,” Dupont said.