Understanding your retirement plan’s fees is not only a good practice; it’s a fiduciary requirement as prescribed by the U.S. Department of Labor (DOL) under the Employee Retirement Income Security Act (ERISA). The traditional enforcement mechanism has been DOL plan audits. More recently, high-profile litigation has driven plan sponsors to evaluate their plan fees. These fees can be grouped into several categories: record keeping, administrative, legal, plan advisory, investment, and education and communication. The principal reason fees have been thrust into the limelight is that plan participants often bear most, if not all of the cost of running the plan. This article does not discuss how to determine if fees are reasonable, but instead explores a relatively new debate over which fee assessment methodology is fairer. Since DOL has been silent on this issue, it affords the plan sponsor the opportunity to determine the most appropriate structure for their plan based on their demo...
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A retirement plan’s overarching goals are to help participants accumulate wealth during their years of employment and to provide them with income during their retirement. The challenge for fiduciaries is to successfully navigate the options available and build an optimal investment menu that is designed to guide participant choices and improve their retirement readiness. Since plan fiduciaries may be exposed to personal liability, it is prudent to have a process in place for the selection and monitoring of investment options. HANYS Benefit Services has outlined a four-step process for constructing an optimal investment menu that: fosters ERISA compliance; provides desirable investment choices for plan participants; and impacts retirement outcomes. Read 4 Steps to Building an Optimal Retirement Plan Lineup for Participants to learn more. If you have any questions, or would like to begin talking to a retirement plan advisor, please get in touch by calling (800) 388-1963 or e-m...
To assess plan health, comprehensive Annual Plan Reviews continue to be of value, and plan providers are developing more concise versions of the report — offered on paper or online. According to the Lincoln Financial Group study, You are here: Understanding financial wellness, retirement readiness and plan health , plan sponsors use plan health data to get quick, timely updates on employee retirement preparedness levels and to help meet their goals by leveraging data to make informed plan design decisions. Next steps for plan sponsors Review year-over-year trends to identify patterns and opportunities. Compare your plan by industry, asset size, and number of participants to set competitive goals. Work with your provider to optimize participant data to help limit assumptions and provide more accurate reporting. Continue to monitor traditional success measures — balances, contribution rates and diversification — while adding new metrics, such as income replacement rates. Work with your p...
In the Lincoln Financial Group study, You are here: Understanding financial wellness, retirement readiness and plan health, plan providers agree that retirement readiness is unique to each individual. A single, accurate income replacement rate does not completely define retirement readiness. Yet, replacement rate is the one measure that seems to be gaining momentum among plan sponsors. Whether plan participants need between 70% and 85% of pre-retirement income, or whether they plan to retire at age 62, 65, 67 or older, plan sponsors are unanimous in the belief that translating assets to potential income is critical. Take action on retirement readiness: Work with your recordkeeper, plan advisors and consultants to generate greater employee engagement, and seek an approach that makes it easy for participants to take action. Ask for employee communications to demonstrate the benefits and impacts of measured, realistic, small steps and to promote content that’s neither simplistic nor cond...
In the Lincoln Financial Group study, You are here: Understanding financial wellness, retirement readiness and plan health , plan sponsors reported that employees need financial education, and they believe instituting a financial wellness program leads to improved job performance and increased employee loyalty. The industry defines “financial wellness” as a program of financial topics delivered through multiple channels to help people minimize their financial challenges. Financial wellness is aspirational, and the path to wellness for participants involves setting reasonable goals and taking positive steps forward. As financial wellness programs become more prevalent and significant over the next few years, we anticipate closer alignment with health and wellness programs. New service providers and program opportunities are rapidly emerging. Best practice considerations: Talk with your retirement plan provider, advisor or consultant about available financial wellness resources. Survey p...
In the study, You are here: Understanding financial wellness, retirement readiness and plan health , the Lincoln Financial Group explored three emerging trends in retirement plan administration. Financial wellness programs . Similar to health wellness programs, financial wellness programs can be adopted by a plan sponsor to improve an individual’s financial health so he or she can accomplish specific financial goals, such as saving amounts sufficient for retirement. In many cases, low participation and savings rates in retirement plans are the results of an inability to save due to financial challenges, such as poor budgeting and credit card debt. Retirement readiness communications. Retirement readiness communications are designed to help participants understand how much income they may need to achieve their retirement goals, whether their savings are on track, and how any shortfalls can be addressed. For plan sponsors, retirement readiness indicators provide an opportunity to monitor...
According to the 2014 Retirement Plan Survey conducted by HANYS Benefit Services, approximately one-half of the responding retirement plan sponsors offer automatic enrollment. Offered in conjunction with automatic escalation, such features can positively impact participant behavior and improve retirement readiness. This article examines some best practices to be considered when implementing automatic features in defined contribution plans that can produce greater results per dollar of employer cost. Background The utilization of automatic features in defined contribution plans has increased significantly since they were first introduced as part of the Pension Protection Act of 2006 (PPA). More plans are adopting these provisions, resulting in higher participation rates among employees. Although this is a positive trend, certain design features actually thwart the success that could otherwise be achieved. Specifically: relatively low default deferral rates result in lower savings; autom...
Many participants lack the ability, time, and/or desire to effectively make sound investment decisions and manage their accounts on an ongoing basis. Traditionally, many plan sponsors felt their responsibility was to offer a broad range of investment options together with employee education. The results, all too often, were that participants were overwhelmed with choice and rarely availed themselves of the education. In recent years, the trend has been to limit the number of investment options and guide participant behavior. The investment menu structure may be just as important as the actual investment options themselves. An effective menu design will address the various participant behaviors: Properly done, a well-designed investment menu can direct behaviors and give participants the confidence they need to feel comfortable with their investment decisions. Read Improving Participant Outcomes: An Action Plan for Plan Sponsors and start developing your action plan to improve particip...
Plan sponsors should review their current plan design features and consider how they drive participant behavior. Studies have shown that participants will often choose deferral rates at a level to obtain the maximum employer match. By stretching out the matching formula, the employer cost stays the same but the employee is encouraged to save more. For example, a plan that matches 100% on the first 5% could move to a 50% match on the first 10% of salary. The employer cost remains constant at 5% while at the same time employees are motivated to contribute up to the 10% level. It is important to limit participants’ ability to use the money for something other than its intended purpose: retirement. Plan sponsors should consider limiting, if not eliminating, loan availability within their plans. Participants rarely understand the true impact of taking a loan from their account—“borrowing from themselves” is a common justification employees use. Although the current economic environment may ...
Until recently, participant outcomes were not a great concern to most plan sponsors; even now, a relatively few number of plan sponsors use income replacement as a measure of plan success. A recent survey conducted by PLANSPONSOR magazine showed just 3.5% of plan sponsors use projected retirement income as a metric to assess their plans. 1 Instead, the goal was to offer a plan with good investment choices, competitive fees, and a recordkeeping platform that would minimize the administrative burden on the employer. Due to industry pressures and technology advances, the unbundling of these programs has driven down administrative costs and provided better choices to employees. However, the decisions of if and how to participate in the plan remain with the employee. The same factors contributing to lower administrative costs and improved investment selection also drove an increase in the complexity of the plan, at least as perceived by the employee. Although plans were now “better,” they...
As we approach year end, now is the time to handle the distribution of annual participant notices as required by ERISA. HANYS Benefit Services created this chart to remind plan administrators of the notices required for distribution, and their applicable deadlines. Should you have any questions about this Retirement Plan Participant Notices Chart, or for information on how HANYS Benefit Services can enhance your organization's retirement please contact us by calling (800) 388-1963 or email us at hbs@hanys.org.
According to the 2014 Retirement Plan Survey conducted by HANYS Benefit Services, approximately one-half of the responding retirement plan sponsors offer automatic enrollment. Offered in conjunction with automatic escalation, such features can positively impact participant behavior and improve retirement readiness. This article examines some best practices to be considered when implementing automatic features in defined contribution plans that can produce greater results per dollar of employer cost. Background The utilization of automatic features in defined contribution plans has increased significantly since they were first introduced as part of the Pension Protection Act of 2006 (PPA). More plans are adopting these provisions, resulting in higher participation rates among employees. Although this is a positive trend, certain design features actually thwart the success that could otherwise be achieved. Specifically: relatively low default deferral rates result in lower savings;...
By complying with ERISA section 404(c), sponsors and other fiduciaries of retirement plans with participant-directed investments may shield themselves from liability for poor investment decisions made by plan participants. If a retirement plan meets the requirements of ERISA section 404(c), no plan fiduciary will be liable for any loss that is the direct and necessary result of a participant’s exercise of control over the investment of his or her plan account. For example, ERISA section 404(c) plan protects a plan fiduciary from being liable for the losses suffered in a down market by the 60-year-old who invests his entire account in an aggressive growth fund. However, plan fiduciaries are responsible for the selection or retention of particular investment options and for investments required by the plan or directed by the plan sponsor. This checklist will help you determine how well you are complying with ERISA section 404(c). This checklist is for informational purposes only and is n...
Defined contribution plans are and will continue to be a mainstay in the market. But, are they working? Improving Participant Outcomes: An Action Plan for Plan Sponsors looks at some of the factors that plan sponsors should consider when assessing the value of the retirement plan offered to their employees. It also considers steps they can take to provide greater assurance that employees will be able to generate sufficient income on which to retire. According to the Investment Company Institute’s 2013 Investment Company Fact Book, at year end 2012, there was approximately $5.1 trillion invested in defined contribution retirement plans in the United States. Recent regulatory changes have placed even greater responsibility on plan sponsors, including heightened fiduciary responsibilities, fee disclosures, and expanded audit and reporting requirements. However, little has been done to ensure participants are any more prepared to retire. Are these defined contribution retirement plans...
Defined contribution plans are and will continue to be a mainstay in the market. But, are they working? Improving Participant Outcomes: An Action Plan for Plan Sponsors looks at some of the factors that plan sponsors should consider when assessing the value of the retirement plan offered to their employees. It also considers steps they can take to provide greater assurance that employees will be able to generate sufficient income on which to retire. According to the Investment Company Institute’s 2013 Investment Company Fact Book, at year end 2012, there was approximately $5.1 trillion invested in defined contribution retirement plans in the United States. Recent regulatory changes have placed even greater responsibility on plan sponsors, including heightened fiduciary responsibilities, fee disclosures, and expanded audit and reporting requirements. However, little has been done to ensure participants are any more prepared to retire. Are these defined contribution retirement plans...