PLANSPONSOR Roadmap: Withdrawal Strategies

Plan sponsors looking to help participants draw down their assets efficiently can educate their employees, vet their recordkeepers and simplify how their recordkeepers market and charge for different drawdown strategies, according to speakers at the third session of the PLANSPONSOR Roadmap Series on Retirement Tier Investing, held September 17.

The third in a four-part series, the session explored what plan sponsors can offer their participants to manage making withdrawals from retirement accounts in a way that maximizes the longevity and sustainability of the accounts. The speakers offered ways for employers to work with recordkeepers and advisers to ensure these options work for participants and retirees.

A full recording of the webinar can be viewed here.

Educating Participants, Marketing Strategies

“A lot of employees do not have the financial acumen to build a smart withdrawal strategy,” said Robert Fortin, senior manager of benefits wealth at the National Railroad Passenger Corp., which operates as Amtrak. “The biggest challenge that we face as employers is letting our employees know there [are] financial tools available to them.”

Plan sponsors are asking not only, “How do we get folks prepared to retire?” according to Kelli Send, co-founder and senior vice president of financial wellness services at Francis LLC, but also, “How we do actually get them to retire?”

Send said there are several ways to help employees retire on time, including helping them plan to replace their paycheck when they stop working. She said plan sponsors can host special workshops for pre-retirees, focused not only on 401(k)s, but also on issues involving Social Security and Medicare. She also said she likes to frame the concept of guaranteed income to her advisees as “buying a pension”—what may be a novel concept to those desiring a traditional defined benefit plan.

Fortin agreed that messaging matters. At Amtrak, his team is crafting a message that employees need to take their financial health as seriously as their physical health.

“Engagement is one of the most challenging strategies, from an employer perspective, because we want to provide good services and tools for employees,” said Fortin. “But it’s also about, ‘How do you draw them in to utilize those tools?’”

“It’s a marketing issue,” commented Sean Kelly, vice president of, and plan adviser at, Hefferman Retirement Services, who moderated the event.

Working With Recordkeepers

Recordkeepers play an important role in determining where account assets land if participants decide to roll their money out of the employer’s plan, Send said. Recordkeepers’ websites may encourage employees to roll their assets into an individual retirement account with the recordkeeper, rather than stay in the plan or choose another IRA provider.

While rolling over to an account with the recordkeeper may be seamless, rolling assets completely out of recordkeeper’s management, when that happens, usually involves “calling and a lot of paperwork,” she said.

It is useful for the plan committee to learn the rollover process and to “decide whether they wany retired participants to stay in the plan,” Send suggested.

Sponsors should also ask their recordkeepers to thoroughly explain to plan participants, in simple terms, how the distribution process works, especially relating to fund-specific withdrawals, to make the process as seamless as possible for plan participants, Send said. She explained that because of the “very small” margins in the recordkeeping business, the recordkeeper firms will try to retain assets when possible.

Fortin jumped in to reinforce how critical the request-for-proposals process can be when picking a recordkeeper. He recommended including a withdrawal section as part of the information solicited in an RFP and spending plenty of time on the process overall when selecting a provider.

“One recordkeeper may be strong on withdrawal strategies … [and] you want to hire the best providers” for your participants, Fortin explained. He said even plan sponsors not actively hiring a recordkeeper can take calls, attend conferences and learn more about withdrawal processes.

“There’s no one herd mindset yet on the right way to draw down,” Fortin said, describing it as an issue on which he prefers to wait, observe and not be a “frontrunner.”

Kelly said he sees three “models,” or options, to replace receiving a paycheck when a participant retires: annuities, target-date funds and TDFs with “an insurance policy” to prevent the retiree from running out of money, even if they have spent down their retirement plan assets.

Fortin acknowledged the models but commented that the uptake has been “slow.” He said there needs to be a way to simplify the options, then sell them to participants and drive engagement up. Without such engagement tools and ways for employees to understand creating retirement income, those employees may continue to work because they are unaware of options that could help them retire with enough money, he said.

“Our objective is to make sure our employees can retire with dignity,” Fortin concluded.