Sponsors of defined contribution plans are faced with meeting many responsibilities, even in the best of times. While the previous year presented us all with innumerable challenges, the best practices outlined below can help plan sponsors maintain focus while navigating what promises to be continued uncertainty and change.
1. (Re)Prioritize Your Retirement Plan
The difficulties organizations experienced in 2020 made it more challenging than usual for plan sponsors to meet their fiduciary obligations and help employees stay on track to achieve retirement readiness. Organizations were forced to shift focus away from their retirement plans to deal with more pressing issues related to safely maintaining operations and simply keeping the organization afloat through the pandemic. Employees may have suffered reduced hours, reduced pay or layoffs which impacted, or are still impacting, their ability to maintain adequate retirement contributions. As the economy and businesses begin to recover, there will be opportunity to re-prioritize retirement – both for employers and employees. Plan sponsors will want to confirm they are offering a retirement plan that is both compliant with applicable law and operated to provide employees with the best opportunity to enjoy a successful retirement. Enacting automatic enrollment or performing an automatic reenrollment can help employees who have either stopped or reduced contributions reengage with the plan. Providing targeted employee education and financial wellness resources can encourage employees to refocus on saving. Including target date funds in the plan lineup can make it easier for employees who are focused elsewhere to select appropriate investments.
2. Protect Yourself (and Your Organization) from Litigation and Enforcement Activity
In 2020, the Employee Benefits Security Administration (EBSA) recovered over $3.1 billion in direct payment to plans, participants and beneficiaries as part of their enforcement activity. Likewise, 401(k) class-action litigation exploded in 2020. Though litigation has tended to target “mega” plans, more recent lawsuits have targeted plans in the large to midsize range. In general, these cases have covered four areas of concern: excessive administrative expenses, excessive investment fees, imprudent investment options, and duty to monitor other plan fiduciaries. However, recent cases have been filed covering hacking, and theft of, participant accounts and the improper use of participant data. As plan sponsors can expect continued increases in both litigation and enforcement activity, a focus on protecting themselves and their organization should be maintained. Operating the plan in the best interest of its participants remains key. Plan sponsors could benefit from confirming vendors have appropriate cybersecurity in place, documenting that prudent processes are being followed and engaging in formal and ongoing fiduciary education.
3. Monitor Legislative Changes from a New Administration
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, The Coronavirus Aid, Relief, and Economic Security (CARES) Act and various pieces of guidance from the Department of Labor and Internal Revenue Service had huge implications for retirement plans in 2020. Additional proposals have garnered bipartisan support. As new legislation and guidance surfaces, plan sponsors must be prepared to respond. Engaging a retirement plan specialist will make the road easier to travel.
4. Remember Improvements Can Be Made Both Inside and Outside the Plan
Employees face a multitude of financial challenges that can keep them from saving adequately for retirement. While things like plan design, improvements to the investment menu and taking a holistic approach to employee education can help plan sponsors improve outcomes for their participants, these solutions may not be enough to overcome every financial challenge. Organizations are now looking at ways to increase employee engagement with their retirement plan by adding benefits that may be separate from the plan. One example is student loan debt repayment programs, which can encourage employees to save for retirement while paying off debt rather than facing an either/or scenario. Another option is emergency savings programs, which can help employees save for a rainy day and are often offered with the goal of decreasing plan leakage in the form of hardship withdrawals or loans.
5. View Your Retirement Plan Through a Diversity, Equity and Inclusion Lens
The renewed fight for social justice and against systemic racism has brought diversity, equity and inclusion (DEI) to the forefront for many organizations (see PNC’s commitment here). Plan sponsors are now beginning to examine employee engagement and retirement readiness through a similar lens. By reviewing plan data, plan sponsors may be able to identify demographic groups that could benefit from additional resources. Sponsors can then work with service providers to deliver targeted solutions including enhanced financial wellness tools, multilingual employee education and automatic plan design features. Additionally, when examining the makeup of the retirement plan’s investment committee and various service providers, organizations may want to consider the potential advantages of including individuals with diverse backgrounds and frameworks of thinking.
Despite the challenges posed by a global pandemic, increasing risk of litigation, and shifting regulatory policy, plan sponsors must remain focused on one simple thing: improving participant outcomes. Advancing workforce financial wellness so that all employees are better able to achieve a successful retirement is the ultimate objective. Many service providers offer support for plan sponsors looking to enhance their workplace benefit program.
For more information, please reach out to your PNC Retirement Plan Advisor.