As workforces shift back into the office, and the U.S. heads into a recovery period, plan sponsors are assessing the impact of the coronavirus pandemic on their participants. The first session on the last day of the 2021 Virtual PLANSPONSOR National Conference (PSNC) included discussions on how sponsors are helping their participants get back on track with saving for retirement, as well as rethinking how they could better aid in the process.
The pandemic resulted in a wave of financial wellness setbacks. Some employers reduced company 401(k) matches, and some participants took loans or distributions from their retirement plan accounts after passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act a year ago in March. According to a study from Fidelity, 6.3% of participants in that company’s plans reported taking a CARES Act distribution, with the average amount being $20,000. The distributions were larger in the manufacturing and health care industries, Fidelity noted.
When asked why they decided to take a loan against their retirement account, 60% said they preferred to borrow from themselves, the study reported. “People are really hopeful going forward, and they were thoughtful when deciding on taking a withdrawal or loan,” said Laura Pinkall, vice president of Fidelity Investments – Workplace Consulting Services, during the panel.
Regardless, “all of these things could have affected how much [participants] have in their retirement account,” said Abigail J.C. Russell, vice president and financial adviser at CAPTRUST.
While CARES Act distributions were low and not as damaging as had been predicted, plan sponsors are still evaluating how they can promote saving post-pandemic. If an employer is financially able to do so, one of the top means is to reinstate the company 401(k) match, Russell said during the panel. While the matching rate does not need to be as high as it was pre-pandemic, “at least something would help,” she said.
Russell also stressed the value of automatic features when reintroducing company matches to participants—especially to employees who had thus far lacked any engagement with the plan. Increasing the default deferral rate from 3% to 5% or 6% can be enough to bring participants up to speed, she said.
One feature that increased in demand throughout the pandemic was the emergency savings vehicle. Robert Massa, managing director at Qualified Plan Advisors, observed that 38% of American workers do not have access to emergency savings, with many unable to afford a $1,000 emergency. “To add that after-tax resource is going to make participants more comfortable in the future,” he said.
The concept of automatic emergency savings, which allows participants to deduct after-tax funds from their paycheck and save them in an account without penalty, was discussed by the panel. While certain employers are taking steps to implement automatic emergency savings, Pinkall said, any focus on rainy-day savings is beneficial to employers and employees alike. “We do have to do better about educating and preparing for emergencies,” she said.
Faleasha Carter, director of benefits at Howard University, which was a winner in this year’s PLANSPONSOR Plan Sponsor of the Year awards, pointed out that what constitutes an emergency and how much a person needs to have saved varies with the individual. “What an emergency is can be relative,” she said.
At Howard University, Carter and her team determine what a participant should squirrel away by the person’s fixed income and fixed expenses. “We need to approach this according to what do you need to do to have savings; where are you when it comes to your family life; when do you want to retire; and when do you start that five-, 10-, 15-year planning process,” she continued.
Emergency savings aren’t just needed because participants experienced a pandemic this year and last—they will always be vital to have, because an emergency can happen at any time. “For some, an emergency is buying a new backpack for their child,” Carter said. “This is nothing new—the pandemic was just the reason for emergency savings this year, but next year it’s going to be something else.”
Among other points to reset are investment strategies and allocations, and especially if the investment lineup is overloaded with mutual funds. Massa argued how multiple large-cap funds are not necessary to have on 401(k) menus. “If you’re in a situation where you have overloaded your menu, it’s simply too complicated for participants,” he said.
Even if one or two participants ask for a specific fund, the sponsor must prioritize its overall participant population, Massa said. “We’re trying to put in a program that works for the broadest group of people; make sure you have a wide range of investments.”
Russell agreed, adding that most of her clients offer around 16 or 17 funds in their lineup, the exact ones based on how savvy participants as investors. The sweet spot is where you don’t scare away participants but also engage your sophisticated employees, she said.
At Howard University, the plan went through an otherwise inspired reset, prior to the pandemic, going from three recordkeepers to one. As a result, the plan reduced its investment mutual funds from 150 to just 25. “It’s easier to streamline those 25 funds, teach the participants, and help them understand what those options are and decide what they’re comfortable with,” Carter said. “Throughout the pandemic, if someone wanted to go online to change their asset allocation, it was easy for them because they had had access to that education prior, and they could connect with someone online and ask for more information.”
Another hot topic throughout the past 15 months has been cybersecurity and the importance of mitigating cyberattacks. “Cybersecurity is top of mind, especially in this virtual world,” said Pinkall. “The levels of phishing and types of breaches to get [personal] information has really increased throughout the pandemic.” She named two-factor authentication and MyVoice, a platform that recognizes a participant’s voice so only that individual can access his account, as two key features for preventing cyberhacks.
Carter touched on the importance of limiting the number of vendors associated with a plan. “We provide streamlined education from one vendor so everyone knows where the [education] source is coming from,” she said.
All panelists cited participants as the best protectors of their own accounts. Aside from conducting webinar and training, discussing steps that participants should take to mitigate attacks, the experts agreed that setting up an online account is the first line of defense participants can take, along with checking their account on a monthly basis. “A participant will see before anyone else if there’s a change in their account they didn’t make,” said Russell.
“If your participant doesn’t set up an account, that in itself can be a risk to their account,” Massa said.
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