INSIGHTS AN OFFICIAL PUBLICATION OF PLAN SPONSOR COUNCIL OF AMERICA
Spring 2026
For Defined Contribution Plan Sponsors
BRIDGING THE FINANCIAL LITERACY GAP
ALSO
ETFS IN RETIREMENT PLANS PRACTICAL LESSONS FROM SPENCE V. AMERICAN AIRLINES 2025 NQDC SURVEY RESULTS
1
CONTENTS
SPRING 2026
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COVER STORY
12 12 Bridging the Financial Literacy Gap Financial literacy remains low and uneven across generations, undermining retirement readiness and fueling financial anxiety. Thankfully, employers and states are expanding financial education efforts, offering hope for stronger retirement preparedness in the future. by John Iekel
PSCA National Conference May 4-6, 2026 Saint Louis, MO Upcoming Webcasts: Establishing an Effective Committee Decision Framework March 27, 2026
FEATURE Geoffrey Prior / Shutterstock.com
UPCOMING DATES & EVENTS
18 Using Exchange-Traded Funds (ETFs) In Retirement Plans The popularity of ETFs is rising – what are some considerations for plan sponsors in including them in their retirement plan lineups? by Robert E. Pike
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NQDC Plan Trends and Best Practices April 1, 2026
2
CONTENTS
SPRING 2026
IN EVERY ISSUE
6 Editor’s Note Designing Plans for Humans, Not Averages by Hattie Greenan
7 New Members
8 President’s Page From Policy Signals to Practical Action: What 2026 Means for Plan Sponsors
Cagkan Sayinr / Shutterstock.com
by Brandon Diersch
10 Leadership Letter Looking Ahead: PSCA’s Vision for 2026
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by Will Hansen
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ARTICLES
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36
40
NQDC Recapping the 2025 Open Enrollment for NQDC Plans
HSA The Smart Way to Support Health Savings Accounts
NQDC Research Participation in NQDC Plans is Growing
by Doug Gardner and Matt Maie
by Valerie Burns, Cynthia Obenland, and Jennifer Snider
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38
Compliance Corner Practical Lessons from Spence v. American Airlines
Education New Year, New Limits: Your 401(k) Action Plan
by Adam Greetis
by Hattie Greenan
Retirement Read(y) Managed Accounts — It’s Not (Just) the Allocation by Nevin Adams
44 Plan Sponsor Perspectives Tracking Down Those Missing Participants by Hattie Greenan
46 Washington Watch How 2026 Could Shape the Next Decade
by Melissa Hudson
by Josh Oppenheimer
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ADVOCACY, EDUCATION, AND INSIGHT FOR AMERICA’S RETIREMENT
SPRING 2026 Insights is Published by
PSCA MEMBER BENEFITS AND RESOURCES Conferences and Training National and regional conferences designed for defined contribution plan administrators and sponsors. Our must-attend events provide education from industry leaders and peer networking. Signature Awards Peer and industry recognition for employee communication and education. Recognizing outstanding defined contribution programs implemented by plan sponsors, administrators, and service providers. Research and Benchmarking PSCA surveys: Most comprehensive and unbiased source of plan benchmarking data in the industry. Annual surveys of profit sharing, 401(k), 403(b), and NQDC plans, as well as HSAs, created by and for members. Current trend and other surveys available throughout the year. Free to members that participate. Surveys currently available include: • 68th Annual Survey of Profit Sharing and 401(k) Plans • 2025 403(b) Plan Survey • 2025 NQDC Plan Survey • 2025 HSA Survey Executive Report A monthly electronic legislative newsletter. Providing concise, current information on Washington’s most recent events and developments.
Media Outreach PSCA works to ensure fair coverage of the DC system in the media. PSCA continually speaks to reporters to provide and promote accurate, concise, and balanced coverage DC plans and responds to negative press with editorials and letters to the editors. PSCA is also active on social media — follow us on twitter at @psca401k and on LinkedIn.
Editor, Director of Research & Communications Hattie Greenan hgreenan@usaretirement.org Executive Director Will Hansen whansen@usaretirement.org Advertising Sales Thomas Connolly TConnolly@usaretirement.org
Washington Representation Your direct connection to Washington DC events and developments affecting DC plans.
PSCA Leadership Council
PSCA works in Washington to advocate in the best interests of our members and bring you the latest developments that will impact your plan. PSCA is a founding board member of the Save Our Savings Coalition that is currently working in Washington to preserve plan limits amongst tax reform.
Immediate Past President Diane Garwood, Horizon Bank
Quarterly Magazine, Insights An award-winning and essential 401(k) and profit sharing plan resource. Featuring nationally-respected columnists, case studies, the latest research, and more. Providing practical and constructive solutions for sponsors.
OFFICERS President Brandon Diersch, Global Financial Benefits Manager, Microsoft
Directors Joyce Anderson, GE; Davis Blier, United Health Group; Ann Brisk, HSA Bank; Dena Brockhouse, Kent Corporation; Chris Dall, PNC; Yvette George, Henrico County Government; Scott Greenman, The Principia; Teresa Hassara, Principal Financial Group; Sheri Melvin, Union of Concerned Scientists; Michelle McGovern, American College of Surgeons; Tom Moore, Thryv; Rose Murtaugh, International Motors LLC; Cynthia Oberland, Precision Medicine Group; Maria Quintiguia, Public Employee Retirement System of Idaho; Alexandra Richardson, Mercer; Laura Stamps, Financial Finesse; Malika Terry, NCR Atleos; Tracy Tillery, GM
Professional Growth — Join a Committee! For plan sponsors, administrators, and service providers. Many opportunities for PSCA members to serve on committees, speak at regional and national conferences, and write articles for Defined Contribution Insights.
PSCA Mission Statement The Plan Sponsor Council of America (PSCA) is a broadly based association of diverse businesses which believe that profit sharing, 401(k), and related savings and incentive programs strengthen the free-enterprise system, empower and motivate the workforce, improve domestic and international competitiveness, and provide a vital source of retirement income. PSCA Competition Law Statement The Plan Sponsor Council of America (PSCA) is committed to fostering a best practices environment for profit sharing, 401(k), and other employer-sponsored defined contribution retirement programs. PSCA adheres to all applicable laws which regulate its activities. These laws include the anti-trust/competition laws which the United States has adopted to preserve the free enterprise system, promote competition, and protect the public from monopolistic and other restrictive trade practices.
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Insights is published by the Plan Sponsor Council of America, 4401 N. Fairfax Drive, Suite 600, Arlington, VA 22203. Subscriptions are part of PSCA membership. Opinions expressed are those of the authors. Nothing may be reprinted without the publisher’s permission. Information contained in Defined Contribution Insights is for general education purposes only and should not be relied upon as legal advice. Contact your legal advisor for advice specific to your plan. Copyright ©2026 by the Plan Sponsor Council of America.
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EDITOR’S NOTE
SPRING 2026
by Hattie Greenan
Designing Plans for Humans, Not Averages
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Turning insight into impact — where benchmarks inform the strategy and people define the purpose.
SPRING HAS A WAY OF SHARPENING OUR FOCUS. BUDGETS RESET. PROJECTS MOVE FROM PLANNING TO EXECUTION. Goals that felt distant in January begin to take shape. For plan sponsors, it’s often the season when strategy turns into action — when benchmarking data becomes design decisions. At PSCA we believe in the power of data to inform decisions. Benchmarks matter. Trends matter. Percentages, medians, adoption rates — they tell the story of where we are and, often, where we’re headed. After all, as the Research Director, it’s my job to pay attention to the averages and interpret them. But plans are not built for averages, they are built for people. Benchmarking is crucial, it grounds decisionmaking in reality and provides context in a fast-moving regulatory and competitive environment. But at the same time, as a member stated in our Plan Sponsor Perspectives article, “Many plan sponsors are HR professionals, and at the heart of HR is a focus on people.” That tension — between data and humanity — runs throughout this issue. The latest data is from our recently released NQDC survey — data that helps sponsors understand how peers are structuring plans and navigating evolving executive compensation strategies. Our litigation coverage underscores how important process and prudence remain. Fiduciary responsibility demands documentation, governance, and awareness of emerging risks. Benchmarks can demonstrate reasonableness. But ultimately, litigation risk management is not just about checking boxes, it’s about thoughtful stewardship on behalf of participants. Our education and communications committee gives a framework for a beginning of the year action plan – one that starts with the data of the new limits and gives some pointers on communicating them to employees – focusing on human behavior to create positive change. The HSA article delves into matching strategies and explores how employers are using benefits design creatively to support broader financial resilience. The averages might tell us how many plans offer a match. The human lens asks: What problem are we trying to solve for our workforce? Is it retirement adequacy? Healthcare costs? Short-term liquidity? For many employees, it’s all three. Nevin Adam’s Retirement Read(y) article looks at new research that statically shows that managed accounts do increase outcomes (often stated, newly proven) – but, the reason is not numerical, its Follow the Discussion:
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behavioral. The use of managed accounts actually changes participants’ behavior for the better, it is not so much about superior asset management. Our cover story on financial literacy brings it all home. We can measure engagement rates and utilization statistics. We can compare participation levels across plan sizes and industries. But financial literacy is ultimately about confidence — about helping individuals make decisions in a system that can feel complex and coded. The reality is that no workforce is average. Your participants span generations, income levels, financial literacy levels, family structures, and career paths. Designing plans for humans means using data wisely — not to replicate what everyone else is doing, but to inform decisions that reflect your unique population. Data gives us the benchmark. Humanity gives us the purpose.
Editor
Hattie Greenan is the Director of Research and Communications for PSCA.
Plan Sponsor Council of America
WELCOME NEW & RECENTLY CREDENTIALED MEMBERS!
Certified Plan Sponsor Professionals Tiffany Amdeeyesus
Kimberley Ephraim
Steven Jones
Rachel Olvitt
Danielle Stafford
Erica Auguillard
Deanna Finley
Nicole Keith
Giselle Ortiz
Matthew Stensland
Barbara Bennett
Rebecca Force
James Kimball
Cember Oxley
CFGI, LLC
Everllance USA Inc Together Credit Union
Victoria Benson
Case Paper Company QuantumDigital Ozark Opportunities, Inc.
Sentara Health Aubuchon Company Gerten Greenhouses & Garden Center Inc
Shurtape
LuxExperience RedwoodHR Consulting
Kristina Pakrul
Jessica Fratrik
Michelle King Butech Bliss
The Atlantic Federal Credit Union
Gowan Construction, Inc.
Lashae Fripp
Jennifer Koenig
Cheryl Park
Richard Bigelow
Alejandra Garcia
MedCost LLC
Stacy Berg
Saint Francis Healthcare System
Ashley Brooks
Everstory Partners Zepz
Community West Bank
Kim Gilman
Tutera Senior Living
First Command Financial Services
Joseph Bullock
Verity Goodell
Interfor U.S. Inc
Joyce Calderwood NiproPharma Packaging
Audrey Cleaver
Chenega Corporation
Eddie Concepcion
Real Chemistry, LLC
Molly Conger
Centripetal Networks, LLC
Trina Cook
Grahams Construction
Jason Cooper Coen Oil
Vanessa Coppens
School of Government Services, Inc.
Orion Federal Credit Union
Jennifer GrimleySmith
ENSTAR Natural Gas Company, LLC
Lisa Ha
CV3 Financial Services LLC
Shelby Harayda
Delta Railroad Services
Kendra Harper
Directions Credit Union
Kaylee Hicks Privia Health
Luong Hoang
Premium Velocity Auto, LLC
Monica De Agostino
Michelle Hurst
Maria Dennison
Gabrielle Interrante
MRIGlobal
Gun Lake Tribe
Courtney Dombrowski IMI Americas
Riverside Health Argo Turboserve Corporation
Sheryl Jones
Sentara Health
National Louis University
Jozi Kohli
The International Center for the Preservation of Wild Animals
Dawna West
HR Options Inc. PK USA Inc
G&A Partners
Roseann Retter
Family Health West
Mike Rickman
Jacqueline Marion
Laura Riedmuller
Novavax, Inc Prometheus Computing
Kimberly McBrien
Karrine Schuldheisz
Emily Medlin
Tammy Seville
Trupanion
Sarah Mistretta
Chesterfield Township
Renee Mrosowski
Summit Group Retirement Planners, Inc.
Cortlynn Murphy Kempower
Jennibel Nunez
Tri-City Electrical Contractors, Inc.
Organon, LLC
Amanda Popelar
The Cleveland Foundation
The Jel Sert Company
Danielle Veneziano
Lara Walker
St. Pauly Textile, Inc.
Kadii Reffell
Freudenberg North America LP
Anchor Network Solutions
Amanda Pirolla
Daniel Long
Rachel Lopez
Mike Stewart
Zoah Wait
Lisa LaCour Bierlein Companies, Inc.
Acadia Healthcare Company
Stockbridge Capital Group
Lynn Redd-Kipper
KPS Global
DeLong’s, Inc.
SAFE Credit Union
Fulton County Medical Center
Janet Shouse
Vensure Employer Services
Ashlee Shultz Briljent
Cielita Spain
Liberty Educational Ministries, Incorporated dba Liberty Christian School
HR Options Surf Op Co LLC Mitchell County Hospital Health Systems
Tammy Winsett Swoop.com, Inc.
Amanda Wolf
Swoon Group, LLC
Alaina Wood
Nightingale Education Group
Laura Wood
Piedmont National Corporation
Jenny Yang
Xponential Fitness LLC
Angiela Zielinski
Casa de Esperanza de lost Ninos, Inc
8 SPRING 2026
PRESIDENT’S PAGE by Brandon Diersch
From Policy Signals to Practical Action: What 2026 Means for Plan Sponsors PSCA is closely tracking regulatory changes and providing expert analysis of how these changes impact you as plan sponsors. Joining a committee is a great way to impact advocacy strategy, and attending PSCA’s National Conference in May will provide the expert insights and analysis you need. DEAR PSCA MEMBERS, As we move through 2026, the retirement landscape is shifting from legislative intent to operational reality. After several years of major policy activity, plan sponsors are now focused on execution: translating regulatory guidance into sound governance, effective plan design, and clear participant communications. This moment is less about reacting to individual announcements (of which there are many) and more about understanding how multiple policy signals fit together. Regulatory clarity, new savings vehicles, and expanded access initiatives all point toward a broader objective: strengthening the private retirement system while improving outcomes for our employees. The Plan Sponsor Council of America (PSCA) remains focused on helping plan sponsors navigate this environment with confidence and discipline.
REGULATORY CLARITY BEGINS TO TAKE SHAPE
One of the most closely watched developments in 2026 is anticipated guidance from the Department of Labor on the inclusion of private assets in defined contribution plans. The emerging direction emphasizes fiduciary process rather than prescriptive limitations. In January, the Department of Labor submitted a proposed rule to clarify the fiduciary process associated with evaluating alternative assets in defined contribution plans, signaling a shift toward regulatory clarity without altering ERISA’s core prudence standards. For plan sponsors, this represents a meaningful evolution. The conversation is shifting away from whether certain investments are allowed and toward how fiduciaries evaluate, monitor, and communicate them. PSCA is closely tracking these developments and providing analysis to help sponsors assess how evolving guidance may fit within their existing investment frameworks.
DISCLOSURE REQUIREMENTS: OPERATIONAL CHANGE WITH STRATEGIC IMPLICATIONS
At the same time, plan sponsors are preparing for tangible operational changes stemming from the Department of Labor’s proposed rule implementing SECURE 2.0’s paper statement requirement. Under the proposal, defined contribution plans would be required to furnish at least one paper benefit statement annually, even when electronic delivery remains the default. PSCA has published a detailed overview of the proposal and its implications for plan sponsors, including timing considerations, participant elections, and coordination with recordkeepers and vendors.
EXPANDING THE SAVINGS ECOSYSTEM BEYOND THE WORKPLACE
In parallel, 2026 introduces new savings vehicles that extend beyond traditional employer-sponsored plans. Launching this summer, Trump Accounts create a federally supported savings account for children
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under age 18, including a onetime $1,000 government contribution for eligible newborns. Families, employers, and other contributors may add funds, positioning these accounts as a long-term savings tool rather than a short-term benefit. While Trump Accounts sit outside workplace plans, plan sponsors are already fielding employee questions about how these accounts interact with existing benefits, payroll systems, and financial wellness programs. PSCA’s analysis explores how Trump Accounts fit alongside 401(k)s, HSAs, and other savings vehicles, while industry groups continue engaging regulators on unresolved implementation questions.
UNIVERSAL PLAN ACCESS AND THE EXPANDED SAVER’S MATCH
Broader access remains a central policy objective. The Administration’s announcement at the State of the Union address, supporting universal retirement plan access, paired
9 SPRING 2026
COMMITTEE PARTICIPATION ALLOWS YOU TO SHAPE OUR RESEARCH PRIORITIES, INFORM ADVOCACY, AND SHARE PRACTICAL PERSPECTIVES THAT INFLUENCE POLICY AND BEST PRACTICES ACROSS THE INDUSTRY. with a proposed federal match of up to $1,000 annually for workers without employer-sponsored plans, builds on the SECURE 2.0 Saver’s Match framework and reinforces national momentum toward increased participation. For plan sponsors, the key issue will be integration. PSCA continues to support policies
that expand access while preserving the employer-based system as the foundation of retirement security. The challenge ahead is ensuring that new access models complement, rather than compete with, workplace plans.
PLAN SPONSORS AT THE CENTER OF CHANGE
Taken together, these developments underscore a consistent theme: plan sponsors remain central to the success of the retirement system. Regulatory clarity, expanded savings tools, and new access initiatives all depend on informed, engaged plan sponsor leadership to translate policy into effective outcomes. PSCA’s committees play a critical role in that effort. I encourage you all to deepen your involvement through one of our committees: • Education & Communications Committee • Health Savings Account Committee • Investment Committee • Government Affairs Committee • Nonqualified Deferred Compensation Committee Committee participation allows you to shape our research priorities, inform advocacy, and share practical perspectives that influence policy and best practices across the industry.
JOIN US IN ST. LOUIS AT THE PSCA NATIONAL CONFERENCE
These themes will come together at the PSCA National Conference, May 4–6, 2026, at the historic St. Louis Union Station Hotel. Designed specifically for plan sponsors, the conference focuses on translating policy developments into actionable strategies. Sessions will address fiduciary governance, disclosure practices, investment oversight, participant engagement, and the growing role of artificial intelligence in HR and business practices from a panel of Chief Human Resource Officers. The conference also provides valuable peer exchange, allowing attendees to compare approaches, share lessons learned, and move from policy signals to practical execution. I look forward to seeing and engaging with many of you at the PSCA National Conference in St. Louis.
LOOKING AHEAD TOGETHER
As regulatory clarity improves and new savings initiatives take shape, I remain optimistic about what lies ahead for plan sponsors and our employees. The opportunities in 2026 are not just about remaining compliant, they are about strengthening plan design, improving participant outcomes, and reinforcing confidence in the private retirement system. On behalf of PSCA, thank you for your continued engagement, leadership, and commitment to advancing retirement security. I look forward to navigating the year ahead together and to connecting with you in St. Louis this May.
Brandon Diersch is a Director of Global Financial Benefits at Microsoft and PSCA’s current President.
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10 SPRING 2026
LEADERSHIP LETTER by Will Hanson
Looking Ahead: PSCA’s Vision for 2026 AS WE TURN THE PAGE TO 2026, I’M ENERGIZED BY THE OPPORTUNITIES AHEAD FOR PSCA AND OUR COMMUNITY OF PLAN SPONSORS. This year promises to be transformative as we expand our educational offerings, strengthen our professional certification program, and bring our community together in new and meaningful ways. First and foremost, I’m thrilled to invite you to St. Louis, Missouri for the 2026 PSCA National Conference. This annual gathering represents the pinnacle of our industry’s thought leadership and networking, and we’ve been working diligently to create an experience that will exceed your expectations. St. Louis, with its rich history and vibrant culture, provides the perfect backdrop for us to explore the evolving landscape of retirement plan administration and fiduciary responsibility. You’ll hear from industry visionaries, engage with practical solutions to your most pressing challenges, and connect with peers who share your commitment to excellence. Mark your calendars now—this is one event you won’t want to miss.
THE DEMAND FOR QUALIFIED, KNOWLEDGEABLE PLAN SPONSORS HAS NEVER BEEN GREATER, AND THE CPSP DESIGNATION HAS EMERGED AS THE GOLD STANDARD IN OUR INDUSTRY. The continued growth of our Certified Plan Sponsor Professional (CPSP) program remains one of our proudest achievements. The demand for qualified, knowledgeable plan sponsors has never been greater, and the CPSP designation has emerged as the gold standard in our industry. We’re seeing remarkable momentum as more professionals recognize the value this credential brings to their careers and their organizations. The CPSP program doesn’t just enhance individual expertise—it elevates the entire profession by establishing a common framework of knowledge and best practices. If you haven’t yet pursued your CPSP designation, I encourage you to consider making 2026 the year you take that important step in your professional development. This quarter, we’re also excited to launch our new quarterly fiduciary webinar series, sponsored by Knowa powered by PSCA. These webinars will provide timely, actionable insights on the fiduciary responsibilities that are at the heart of what we do. From regulatory updates to practical risk management strategies, this series will keep you informed and prepared. The partnership with Knowa underscores our commitment to bringing you the highest quality educational content from trusted industry experts. These sessions will be interactive, convenient, and designed to fit into your busy schedule while delivering real value.
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What ties all these initiatives together is PSCA’s unwavering commitment to you—the plan sponsors, consultants, and service providers who work tirelessly to help millions of Americans achieve retirement security. Whether you’re joining us in St. Louis, pursuing your CPSP certification, or participating in our webinar series, you’re investing in yourself and in the future of our profession. Thank you for your continued dedication to PSCA and to the participants we serve. Here’s to a successful and impactful 2026. Will Hansen is PSCA’s Executive Director and Chief Government Affairs Officer for the American Retirement Association.
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12 SPRING 2026
COVER STORY by John Iekel
BRIDGING
THE FINANCIAL
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COVER STORY
13 SPRING 2026
GAP Financial literacy remains low and uneven across generations, undermining retirement readiness and fueling financial anxiety. Thankfully, employers and states are expanding financial education efforts, offering hope for stronger retirement preparedness in the future.
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AI Generator / Shutterstock.com
LITERACY
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COVER STORY
SPRING 2026
K
nowledge is power, it is said. It certainly is central to retirement readiness, but there has been much discussion of troubling gaps in understanding what it takes to build a financially secure retirement.
But there’s good news! Widespread steps are underway to fill those gaps — and they are rays of hope for retirement plans as well as current and future participants.
GLASS HALF FULL OR HALF EMPTY?
Literally both. In the 9th Annual Personal Finance Index, which TIAA prepared in 2025, adults in the study answered almost half of the financial literacy questions correctly — 49 percent. It was the third consecutive year in which they got nearly half correct. FINRA reported similar findings from its 2024 Investor Survey. They said that, on average, 2,861 respondents answered 5.3 of 11 questions correctly about investing.
LOOK CLOSELY
Averages are informative and useful because they show overall trends, but they only tell part of the story — drilling down provides more focused data that can help pinpoint actions to address a problem. For instance, TIAA found in its 2025 study that while the level of financial literacy among respondents who belong to the Baby Boom generation stood at 55 percent — not at all impressive, but at least above the 50 percent level — that was 17 percentage points higher than the level evinced by members of Gen Z. These results suggest two things: 1. The need to boost knowledge is urgent among older employees, since they are the closest to retirement age. 2. It’s crucial to boost the knowledge of the members of the younger generation, since many of them lack a good grasp of financial matters, and the sooner they collectively show increased knowledge, the better — in part because that suggests better prospects for effective retirement saving. TIAA also found sharp gaps between those who have a very low level of financial literacy, which they define as 25 percent
or fewer answers correct, and those with a very high level, defined as 75 percent or more answers correct. They found that those with very low financial literacy were (1) twice as likely to be constrained by debt as those with very high financial literacy, and (2) five times more likely to be unsure whether they have sufficient savings to cover one month of living expenses. An example. In a presentation at the 2025 National Tax-deferred Savings Association conference, Dr. Randy Mahlerwein illustrated the need for greater financial literacy — at least regarding retirement savings — in a particular segment of the economy. Mahlerwein serves as Assistant Superintendent of the largest school district in Arizona — Mesa Public Schools — and has served in the education system in a variety of capacities. He offered his insights and expertise in reaching those
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who have not prepared for retirement in the education community. Mahlerwein said that the public-school administrators with whom he has worked and studied have no understanding of inflation or the future value of the dollar. They may know how they want to live in the future, he said, but have “zero understanding” of what it will cost to do so. Teachers and school administrators need help quantifying financial goals, Mahlerwein said, and need to know how to assign a dollar amount to broader objectives.
WHY?
Why is there a dearth of financial literacy for many? Mahlerwein suggested a notion applicable not only to teachers but also to others, such as caregivers. It is this — activities on behalf of others sometimes leave one too busy thinking about others to take care of oneself. And that includes taking care of oneself financially in the
COVER STORY
15 SPRING 2026
short term and the long run. Mahlerwein offered attendees a look at what he learned from his discussions with two school principals in particular. A 42-year-old principal with children between the ages of 4 and 11 told him that he had saved nothing for retirement due to: · lack of understanding. · fear of the unknown. · a feeling of intimidation. · lack of trust in financial professionals; and · a sense that life is paycheck-to-paycheck. A 62-year-old principal with five children between the ages of 20 and 27 told him that nothing had been invested, and he had the feeling that he couldn’t stop working. The reasons for this include: · ignorance of access to means to save for retirement. · a feeling that the ability to retire is unattainable. · making family stability the top priority, leaving little margin for longterm investments. · already allocating money to church and faithrelated commitments. Money dysmorphia. Credit Karma has cited another factor underlying financial illiteracy. It says that late in 2023, a phenomenon called “money dysmorphia” — a condition in which an individual feels insecure about their financial
MORE THAN 70 PERCENT OF THOSE WHO HAVE NOT RETIRED EXPECT TO OUTLIVE THEIR RETIREMENT SAVINGS.
condition regardless of how things really may stand — became more pronounced. This, they say, adds to the weight of statistics showing lower levels of financial literacy among younger generations. Credit Karma says that money dysmorphia is having an especially significant impact on them. They cite a study that Qualtrics conducted on their behalf, which found that 41 percent of millennials and 43 percent of Gen Z experience the condition. Further, they found that 48 percent of Gen Z and 59 percent of millennials reported feeling financially behind. Not just the young. Gloom is not reserved only for younger generations. In the
March 2024 study “Retirement Planning & Health Care Costs,” eHealth and Retirable report that most respondents don’t think their money will last through retirement. More than 70 percent of those who have not retired expect to outlive their retirement savings. And there is pessimism even among those who have already retired — just more than 40 percent think their savings will be depleted during their retirement. Not only that, say eHealth and Retireable, while just more than half of the people in their study said they are satisfied with their current financial situation, a mere 17 percent are very satisfied. Similarly, SoFi at Work found in its research that 45 percent of the employees it studied feel stress about having insufficient retirement savings.
THE TO-DO LIST
What can and should be done to increase financial literacy (and in the process, retirement readiness)? “It starts with acknowledging that employees’ retirement contributions don’t exist in a silo and seeing their personal finances holistically — from the burden of student loan repayment to building an emergency fund,” argues Harlyn Croland, Head of Business Operations & Strategy, at Betterment at Work.
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Education is key. Educational initiatives (such as workshops, seminars, and online resources) “will have a meaningful impact on their employees’ financial literacy,” says Croland, since it can put them on a path “toward better understanding of investing concepts as well as informed decisions of retirement planning.” Paul Daneshrad, Founder & CEO of the investment and real estate firm StarPoint Properties, has expressed a similar sentiment, asserting that employers and administrators need to devote more time and attention to financial literacy. Further, he says, “Employers should require all employees to take a financial education and planning course. This course should be mandatory and taken every three years.” Start Young. It is not enough to reach people when they are employees, Daneshrad argues. “It actually should start early, in high school, and be reinforced at all levels as people age,” he says. “Start very young, high school or earlier,” Daneshrad advocates. “Have it start within the family and be taught and emphasized by the family: parents and grandparents. Reinforced in school by teachers, and a specialist comes in once a year to educate in more depth. Every child should have a retirement account set up by the time they are 18,” he continues. That education entails more than seminars, online instruction for employees, and conferences for professionals and plan administrators. An increasing number of states are not content to limit that to people who can vote. In the States. An increasing number of states are expanding their conception of literacy to incorporate personal finances, and part of that is not limiting education concerning retirement readiness to only people old enough to vote. That, in turn, will help lay the groundwork for young people now to prepare for a financially secure retirement. Financial literacy classes are intended to inculcate skills meant to last a lifetime. The Virginia Department of Education, for instance, in discussing its economics and personal finance education programs, says, “Instruction in economics and personal finance prepares students to function effectively as consumers, savers, investors, entrepreneurs, and active citizens.” Officials also see such programs as investments in the future — and not just for students, but also for communities and society at large. In her message in the revised Wisconsin Standards for Personal Financial Literacy, Wisconsin State Superintendent of Education Carolyn Stanford Taylor wrote, “The personal financial literacy skills and knowledge learned in
Wisconsin schools support all students in becoming college and career-ready. Wisconsin communities are made stronger through these positive results for students.” More than half the states have enacted requirements that high school students take a class that includes instruction in some form of financial literacy. The first state to require high schools to put that in their curricula was Utah in 2008. The year after, Virginia enacted a measure setting personal finance requirements for high school graduates; it went into effect for the class of 2015. Alabama was another early adopter – its requirement that students receive financial literacy instruction took effect in the 2013-2014 school year. Tennessee established its in 2013 and Missouri did so in 2017. Twenty-two sister states have joined those first five and either have such requirements in place now or will within the next five years. Reach of the mandate. Most states with financial literacy requirements explicitly require public schools to implement curricula to impart that knowledge. Some, like Nebraska, are explicit in saying that. Ohio, however, is not; rather, it implies that students in private and
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charter schools are not required to take financial literacy classes. Others, however — like Indiana — require that students in both public and private schools receive education in financial matters. The states also vary regarding the age levels they target in the financial literacy classes. Mississippi’s financial literacy classes, for instance, are part of the College and Career Readiness course. Florida, however, is not content to limit such instruction to only high school students – it starts in kindergarten. Credit where credit is due. The amount of credit students earn for taking financial literacy-related classes varies. Some states mandate how much credit a student earns taking the required coursework, but Minnesota leaves it up to the individual school districts to determine that, calling it “a locally determined decision” and giving them the flexibility to consider “local factors” such as trimester vs semester scheduling, block schedules, and virtual instruction. In Connecticut, Florida, Georgia, Iowa, Kansas, Kentucky, Michigan, Missouri, Ohio, Oregon, South Carolina, Tennessee, West Virginia, and Wisconsin, students will satisfy the financial literacy
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START VERY YOUNG, HIGH SCHOOL OR EARLIER. HAVE IT START WITHIN THE FAMILY AND BE TAUGHT AND EMPHASIZED BY THE FAMILY: PARENTS AND GRANDPARENTS. REINFORCED IN SCHOOL BY TEACHERS, AND A SPECIALIST COMES IN ONCE A YEAR TO EDUCATE IN MORE DEPTH. EVERY CHILD SHOULD HAVE A RETIREMENT ACCOUNT SET UP BY THE TIME THEY ARE 18. requirement with a halfsemester class. Curricula. There is no uniform curriculum across the states that requires students to take financial literacy classes. Rather, like the variations that distinguish each state, their systems have nuances unique to them and the way officials determine it best to instruct their students. Rhode Island is flexible. It makes financial literacy proficiency a graduation requirement, but it also affords students a variety of ways to demonstrate it. Florida gives school systems, schools, and teachers considerable latitude in the materials they provide and use with students. These include text or narration, visuals, assignments, and assessments that are provided via print, audio, or visual media; CDs; DVDs; PowerPoint presentations; or software adaptable for interactive whiteboards. But no state is as creative as Alabama in giving the
subject matter some extra zhuzh. One of the tools it uses to provide financial education to students is Financial Football, a football-themed game developed by the state Treasurer’s office, Visa Inc., the National Football League, and Regions Bank. And Minnesota means business. The Land of 1,000 Lakes is not content to leave financial instruction to just anyone. A teacher of a personal finance course must have a field license or out-of-field permission in agricultural education, business, family and consumer science, social studies, or math. What’s in the Curriculum? It depends on which state one is in. Here’s a sample. Alabama: managing finances and budgeting, saving and investing, banking and financial institutions, credit and debt, and risk management and insurance. Florida: saving, investing, filing taxes, loan applications, contracts, money management, opening bank accounts, computing
interest, insurance policies, and budgeting. Kentucky: saving, budgeting, investing, insurance, risk management, taxes, debt management, and credit. Mississippi: how to pay for college, choosing a career, setting financial goals, controlling and managing credit and debt, and building wealth. North Carolina: the true cost of credit, choosing and managing a credit card, home mortgages, credit scores, credit reports, and borrowing money. Virginia: personal finance and economics. Wisconsin: money management, credit and debt, risk management, insurance, financial mindset, employment, saving, and investing.
PROSPECTS FOR SUCCESS
SoFi at Work suggests that employees are receptive to efforts to increase their financial literacy. A survey conducted by CITE Research of 750 human resource leaders and 750 full-time employees found that respondents expressed a “tremendous opportunity for employers to offer financial education” to employees. And the chances that their employees will take advantage of that are increasing, SoFi adds. They report that employees’ interest in increasing financial literacy was twice that in their previous study. T. Rowe Price, too, has found strong employee support for education. In their “Reference Point” report on participants’ behavior and attitudes regarding retirement plans in 2023, they say that participants’ engagement with educational resources on investing surpassed their engagement with any other topic. They add that participants’ interest in financial wellness content also grew in 2023. John Iekel is a Senior Writer-Editor for the American Retirement Association.
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FEATURE by Robert E. Pike
Using ExchangeTraded Funds (ETFs) In Retirement Plans PSCA.ORG
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katjen / Shutterstock.com
The popularity of ETFs is rising – what are some considerations for plan sponsors in including them in their retirement plan lineups?
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I
n the recently published PSCA 68th Annual Survey, respondents detailed the type of investment structure their plan utilized. In many asset classes, plans held less than two percent in ETF assets.
See Exhibit 1.
Exhbit 1: Investment Structure by Fund Type Fund Type
Investment Fund Structure401(k) Plans
Mutual Fund
Co-Mingled
Insurance Account
ETF
Separately Managed Account
Alternative Asset Class
44.5%
28.1%
2.9%
4%
20.4%
Balanced Fund/Asset Allocation
53.1%
25.4%
1.3%
2.7%
17.5%
Bond-Actively Managed, Domestic
50.8%
26.4%
2%
2.2%
18.6%
Bond-Indexed, Domestic
58.2%
25.3%
1.6%
1.9%
13.0%
Bond, International
52.8%
25.6%
1.1%
1.9%
18.6%
TIPS
52.4%
24.4%
1.2%
2.4%
19.5%
Cash Equivalents (CD/Money Market)
59.9%
21.7%
2.6%
1.3%
14.6%
Company Stock
30.6%
32.4%
1.8%
6.3%
28.8%
Emerging Markets
58.0%
22.6%
1.3%
1.6%
16.5%
Equity-Actively Managed, Domestic
53.0%
26.7%
2.2%
1.3%
16.8%
Equity-Actively Managed, International/Global
55.2%
25.6%
1.9%
1.2%
16.1%
Equity-Indexed, Domestic
58.7%
24.1%
1.4%
1.6%
14.1%
Equity-Indexed, International/Global
55.1%
25.9%
0.9%
1.9%
16.1%
ESG Funds (Socially Responsible)
50.8%
23.8%
2.4%
3.2%
19.8%
Real Estate Fund (Including REITs)
59.5%
20.8%
1.1%
2.3%
16.3%
Sector Funds/Commodities (Other than Real Estate)
50.0%
26.1%
0.7%
2.8%
20.4%
Self-Directed Brokerage/Mutual Fund Window
39.1%
27.5%
1.9%
9.2%
22.2%
Stable Value
39.5%
35.9%
8.5%
1.4%
14.7%
Target Retirement Date
50.6%
32.3%
2.3%
2.5%
12.5%
Target Risk
43.0%
31.8%
2.6%
2.6%
19.9%
Other
33.3%
34.8%
6.1%
3.0%
22.7%
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Street Bank & Trust when they launched SPY (SPDR® S&P 500® ETF), a basket of secu tracking the performance of the S&P 500® Index. FEATURE
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Unlike MFs, ETFs are listed and traded on a stock exchange, thus giving investors the SPRING 2026 to trade the fund like a stock throughout the trading day (inter-day trading). ETFs (like stocks) can also be sold short. The most common investment vehicle (mutual funds, or MFs) are technically “registered investment companies” (RIC) governed by the Investment Company Act of 1940. They are “open-end funds” as the fund sponsor itself is continually issuing and redeeming shares due to underlying shareholder activity. The first U.S. MF was created in 1924. In 1980, when the first 401(k) plan was established, MFs were the only type of publicly traded commingled fund available for investment. This longevity and early “head start” help to explain in large part the dominance of MFs held by retirement plans. In 1993, a new type of RIC called an Exchange-Traded Fund (ETF) was introduced by State Street Bank & Trust when they launched SPY (SPDR® S&P 500® ETF), a basket of securities tracking the performance of the S&P 500® Index.
Unlike MFs, ETFs are listed and traded on a stock exchange, MF shares, by contrast, are only created or redeemed once per day by the fund com thus giving investors the ability to trade the fund like a stock the trading day (inter-day trading). ETFs (like stocks) itself at the 4 pm closing price (NAV, orthroughout net asset value). A key challenge facing can also be sold short. shares, by contrast, only created or redeemed per recordkeepers and custodians from the MF very start wasare how to trade andonce process ETF day by the fund company itself at the 4 pm closing price (NAV, or net value). A key challenge facingregimen. recordkeepersWe’ll and custodians systems that had been architected on asset a one price per day examine th from the very start was how to trade and process ETFs on systems shortly. that had been architected on a one price per day regimen. We’ll examine that shortly.
The Growth of ETFs The Growth of ETFs growth ofin assets underover management (AUM) in20 ETFsyears over the (and t The growth of assets under managementThe(AUM) ETFs the past past 20 years (and the concomitant decline in mutual fund flows) has been astonishing. See Exhibit 2. concomitant decline in mutual fund flows) has been astonishing. See Exhibit 2. Exhibit 2: ETF and Mutual Fund AUM and Cumulaative Flows Exhibit 2: ETF and Mutual Fund AUM and Cumulaative Flows By Calendar Year, $ trillions
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This divergence has been particularly acute in the US equity fund category, especially This divergence has been particularly acute in the US equity funds. Exhibit 3 shows just how dominant passive US equity index actively managed US equity mutual 3 have shows just how dominant passive US fund category, especially actively managed US equity funds. mutual Exhibit funds become. equity index funds have become. Exhibit 3:Growth Growth Index Funds Exhibit 3: of of Index Funds Over Over Time Time
Advantages of ETF There are three critical reasons why ETFs have grown to be the destination of choice for new U.S. fund flows: lower costs, greater tax efficiency, and more transparency as to their holdings. In addition, the most cutting-edge and highly sophisticated strategies from PSCA.ORG leading institutional managers are now being “packaged” for retail investors almost
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ADVANTAGES OF ETF
There are three critical reasons why ETFs have grown to be the destination of choice for new U.S. fund flows: lower costs, greater tax efficiency, and more transparency as to their holdings. In addition, the most cutting-edge and highly sophisticated strategies from leading institutional managers are now being “packaged” for retail investors almost exclusively via ETFs. On the cost front, the median expense ratio for mutual funds is .90 percent versus .56 percent for ETFS. If we look at average operating expenses ratios (OER) for just actively managed funds, we find the same thing. See Exhibit 4.
TAX EFFICIENCY
Investors in tax-deferred retirement plans do not usually consider the tax impact of a fund’s operations, but it is important to understand in the context of overall demand for a given fund (not everything is performance driven).
Mutual funds commonly distribute capital gains to all shareholders at year end regardless of the investor’s holding period. These gains are based on the aggregate trading activity for the fund’s portfolio holdings (strategic re-positioning and raising cash for redemptions by the portfolio managers are the two most common activities.) This means that a shareholder who bought and held shares (even for one day prior to the record date during the current fiscal year) will receive an entire year’s worth of capital gains generated by the portfolio even though they had no selling activity for their personally held shares. In other words, the accumulated yearly costs of all portfolio activity (driven by other shareholders) are borne proportionately by every single fund holder (even brand-new ones) – even if they did nothing. (Some might call it “socializing” the costs of a mutual fund operation.)
Exhibit Use Actively Managed Over Time Exhibit 4:4:Use of of Actively Managed Funds Funds Over Time
Tax Efficiency Investors in tax-deferred retirement plans do not usually consider the tax impact of a fund’s operations, but it is important to understand in the context of overall demand for a given fund (not everything is performance driven). PSCA.ORG
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By contrast, ETFs rarely distribute capital gains due to a unique design feature that allows fund shares to be created or redeemed “in kind” using sophisticated tax lot management that effectively neutralizes any gains. In 2024, for instance, ETFs made up 31 percent of managed fund assets yet distributed less than one percent of all capital gains paid by all funds. See Exhibit 5.
Exhibit 5: Total Capital Gain Distributions
Exhibit 5: Total Capital Gain Distributions
(“authorized participants” or an AP) to transact directly with the fund. (Examples of APs are JP Morgan, Goldman Sachs, Bank of America and other large institutional broker-dealers.)
ETF CREATE / REDEEM PROCESS
Unlike MF shareholders, ETF investors don’t transact directly with the fund company when buying or selling. Instead, they buy or sell existing shares from other holders on an exchange (i.e. a “secondary market” transaction). When demand for an ETF rises, newly issued ETF shares (“primary market” issuance) are handled by an AP via “creation units” on behalf of the fund. “Redemption units” are used to reduce the outstanding share “float” when demand decreases. This “create/redeem” process is where the tax magic happens. Creation units are a large block of shares, say 50,000, by which an ETF effectively “issues” new shares. Cash from new shareholders is used by the AP to purchase the precise basket of securities making up the fund holdings (each security acquired having its own cost basis). (For an S&P 500® Index ETF, that means acquiring 500 new tax lots EVERY DAY there is creation activity!) The AP delivers these security “baskets” in exchange for new ETF shares issued by the fund, which are then added to the “float” on the primary exchange to satisfy that day’s demand. Any excess shares are typically held in the inventory of the market maker for any given ETF. The process works in reverse using redemption units, with the key distinction being that the fund itself does not have to sell holdings to raise cash (i.e. incur a capital gain or loss). Instead, the fund can deliver an “in-kind” basket of shares to the AP equal to the cash required. (Note that the basket is comprised of carefully selected tax lots intended to maintain a “flat” taxable profile for the fund.) The AP disposes of those shares through its own trading activities, and the realized cash proceeds are then sent to the fund. This avoids nearly all capital gains passing through the fund itself – it is simply swapping “securities for cash”. This is why ETFs rarely declare and distribute capital gains. Turning back to the transparency issue, ETFs in their early form were mostly passive, index-based strategies, well suited to be “fully transparent” (i.e. daily disclosure of all fund holdings). Even today, any investor can go to the website for an index ETF and download a complete set of holdings. This provides a direct “look-through” to the underlying portfolio (and hopefully no surprises for investment analysts and others who are paid to manage and understand portfolio risk.) Not all ETFs are fully transparent though. As an example, Vanguard’s Index ETFs are technically a separate share class of their index MFs, with holdings disclosed 15 days following each month end (a good move on Vanguard’s part as it is still more frequent than the required quarterly MF filing).
Importantly, since outstanding (issued) ETF shares trade throughout the day on an Importantly, since outstanding (issued) ETF shares trade throughout the day on anand exchange, buysare and sells are “netted” exchange, buys sells “netted” daily so that new share issuance or redemption is daily so that new share issuance or redemption is minimized. That minimized. Thatwhich is not ofspecific MF shares, is not true of MF shares, musttrue redeem shares or which must redeem specific shares or issue new issue new shares each time a shareholder transacts (adding to fund shares each time a shareholder transacts (adding to fund operational costs). operational costs). FUND TRANSPARENCY Fund Transparency In addition, mutual funds offer little transparency, with holdings In addition, mutual funds offer little with holdings disclosed only quarterly in disclosed only quarterly in arrears per SEC guidelines. Thistransparency, can be highly injurious to fund shareholders, as in 2008-2009 when some arrears per SEC guidelines. This can be highly injurious to fund shareholders, as in 2008U.S. money market, bond, financial sector and other value equity funds disclosed soon to be worthless) holdings in 2009 whensignificant some (and U.S. money market, bond, financial sector and other value equity funds Bears Stearns, Lehman Brothers, and “value-oriented” names – disclosed (and soon betoworthless) holdings in Bears Stearns, Lehman after the fact of significant these company’s bankruptcies (andto much the surprise of fund shareholders). Brothers, AIG and other “value-oriented” names – after the fact of these company’s By contrast, most ETFs publish their holdings daily (usually via a downloadable spreadsheet). Daily disclosure is one of the of fund shareholders). bankruptcies (and much to the surprise requirements of SEC Rule 6c-11 (the “ETF Rule”), passed in 2019, which reformed a cumbersome registration process for ETFs that required them to file for “exemptive relief” under the Investment Company Act of 1940 each time a new fund was proposed. This “relief” was required because ETFs allow large, identified institutions
By contrast, most ETFs publish their holdings daily (usually via a downloadable ACTIVE ETFS Another key aspect of the 2019 ETF rule was to allow for the spreadsheet). Daily disclosure is one of the requirements of SEC Rule 6c-11 (the “ETF use of “custom baskets” during the create /redeem process. This Rule”), passed in 2019, which reformed a cumbersome registration process for ETFs that required them to file for “exemptive relief”PSCA.ORG under the Investment Company Act of 1940 each time a new fund was proposed. This “relief” was required because ETFs allow large,
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provision gave ETF fund managers greater flexibility to acquire portfolio holdings, particularly in less liquid markets where securities are typically more difficult to access. The implementation of this rule opened the door for active strategies to enter the ETF market. Most active ETFs can be described as “semi-transparent” when it comes to disclosure of their portfolio holdings. This means that, to protect their “intellectual property” (stock picks for instance), and to comply with the ETF rule, their required disclosure may omit 8-10 percent of their actual holdings. This allowance gives a fund sufficient time to transact in a target security (thus preventing “front-running” by other investors). Active ETFs usually publish their holdings either monthly or quarterly depending on the fund issuer. Some also impose a 10-15 delay after month-end before filing their holdings list. Again, monthly is better than quarterly, another advantage of ETFs over MFs. Another key development supporting the rise in issuance of active ETFs is the ongoing “cloning” of actively managed mutual funds with a long track record of superior performance into a new ETF. The newly cloned ETF is usually a separate Trust (distinct and separate legal entity from the MF) whose portfolio closely matches the “parent” fund (but may not exactly). The cloned ETF almost always carries a lower expense ratio, making them very attractive for all investors. But note also that many active mutual funds are “closing” and converting to an ETF. This is a “forced conversion” where existing shareholders have no choice but to accept the newly minted ETF (or sell the MF shares prior to conversion). Plans need to monitor their fund shareholder correspondence closely. In the unfortunate event of a MF closure, they will need to act quickly to replace the fund or sign the required paperwork to add ETFs to their menu if they wish to retain the new ETF. Finally, active ETFs are beginning to offer cutting-edge institutional grade (separate account) strategies that have heretofore been unavailable to retail investors. One of the most successful ETF launches in 2025, for instance, was the SPDR® Bridgewater All Weather ETF (ALLW). This ETF offers investors access to Bridgewater Associates’ flagship “global macro” strategic asset allocation approach, which has been utilized for decades by many of the world’s leading institutional investors.
ADDING ETFS TO A RETIREMENT PLAN
If a plan sponsor (in conjunction with their investment professionals) has decided to add ETFs to their plan’s fund line-up, they will first need to determine product availability on the plan’s custodial platform. As with MFs, the custodian will scrutinize product features before approving it for use by a retirement plan. For ETFs, the primary evaluative metrics are relevance and liquidity. A newly launched ETF with $5 million in assets and pursuing an inverse return or leveraged return to a single stock is not going to pass muster. Custodians are looking for highly liquid ETFs (trading
100,000 shares a day or more for instance) from name brand fund sponsors which pursue well-established investment objectives (large cap US equity growth funds for example). Importantly, a real benefit when evaluating ETFs is that they do not have separate share classes as mutual funds do. As most practitioners will attest, a significant amount of analytical time for mutual funds goes towards unpacking the various share class fee structures and restrictions. This all goes away when choosing to add an ETF. The next step is to engage the plan’s recordkeeper (RK) to ascertain the additional procedures/documents that are required to add ETFs. Importantly, not all RKs have the ability to include ETFs on their systems, so if they do not, another search must be undertaken to find a suitable RK. RKs serve as the bridge between the plan’s participants and the plan assets, which are held by a custodian. They will typically coordinate all documentation during this process. Plans will usually have to execute an “addendum” to their existing custodial service agreement (“contract”) which spells out in detail the additional stipulations that come with adding ETFs. The most important of these is a small asset-based fee for trade processing and other services that is based on the “trade settlement cycle” selected, usually referred to as an “early cut-off” or “standard” pricing option.
EARLY CUT-OFF PRICING OPTION
An early cut-off means that all trades must be submitted by the RK to the custodian several hours before market close (say 1:00 pm or 2:00 pm) to receive that day’s closing prices. A typical fee would be 1 - 2 basis points (bps). This option allows ETFs to be purchased “same day” as there is ample time to prepare the ETF trade for execution prior to the close (and thus a lower cost.) However, since the mutual fund NAV is not struck until 4 pm, the offsetting leg of any fund swap occurs on the following day. This early cut-off arrangement is thus termed an “NDSE” (Non-Same Day Exchange trading cycle). Note that ETF trading expertise is required to receive “best execution” on an exchange during normal market hours. Specific order types are used. A very common order type for an ETF is a “Market on Close” (MoC) order, where the execution agent is given in advance the ETF share quantity to be bought or sold at that day’s closing price. Every ETF has a “capital markets desk / market maker” (Jane Street and Virtu are examples) which coordinates with their designated AP to maintain ETF share and price liquidity, so this MoC information is of great assistance should large “create / redeem units” be required to satisfy an MoC order. (This is the best way to “book match” the closing prices of a mutual fund and ETF since both reflect 4 pm market values of the underlying portfolio assets.) Alternatively, the popular “Volume Weighted Average Price” (VWAP) order type sources execution prices over a set period of time (say from 2 – 4 pm) to create a single average price based on the volume of shares associated with each trade.
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Other trading methods may be used but they all satisfy the “single price” requirement used by recordkeeping systems (RKS) to record and allocate plan trading.
STANDARD PRICING OPTION
The standard option allows trade files to be submitted “after hours” (say 10 or 11 pm) on trade date to receive that day’s closing price for the ETF (remember an ETF trades on an exchange which closes at 4 pm). Pricing is higher for this option (4 to 6 bps) as the custodian’s trading partners must use sophisticated pricing and hedging techniques to “capture” a 4 pm closing ETF price (after the fact). The advantage of the standard option, however, is that the NAV of the MF sold is known with certainty. The Standard pricing option therefore enables “SDE,” or same-day exchange (for both sides of a fund swap). Note that any “ETF program fees” (under either pricing option) can be billed to the plan sponsor and not charged directly to the participant in the form of a “commission.” (They can thus be a deductible expense for the company sponsoring the plan and, assuming no plan assets are used to pay this expense, less of a potential fiduciary liability.) Alternatively, they may be billed to the plan’s participants as an administrative fee. Understanding how these fees are billed and who exactly pays them is another important item on the due diligence checklist.
OPERATIONAL CHALLENGES FOR ETFS
For any plan, there are essentially two types of trades: daily participant directed trades (salary deferrals/contributions, redemptions, and rebalancing) and plan level fund changes (swaps) where an existing fund is replaced by another, with the proceeds being “mapped” to the replacement fund. (It is common practice, however, to limit the number of fund changes to once or twice per year without an additional fee being added.) In both cases, the RK will prepare each day an “omnibus trade file” for submission to their various custodians. An “omnibus” file (also called an “exchange file”) is a summary of all trades for all funds for all plans on the RKS. These files include all product types, including not only mutual funds and ETFs, but also CITs and stable value funds, and other unique assets (company stock for example). All RK file submissions must meet the guidelines and, most importantly, the timelines established by the plan’s custodian. Upon receipt by the custodian, these trades are prepared and executed according to their established procedures. MF to MF trades present no problems as the assets are swapped on the same trade date. However, as we have seen, under the NDSE trading cycle, the next day execution of the fund swap exposes plan assets to overnight price movements. This presents a significant fiduciary risk. Any savvy trader knows that a true “swap” is the only way to minimize risk via “price slippage”: the proceeds (dollars) from a sale of an asset are immediately re-invested into the purchased asset
(same time stamp if possible). No time should elapse in a true swap, as assets are sold and bought nearly instantaneously (or, in the case of a mutual fund or ETF, both sides are executed the same day at the daily NAV closing price at 4 pm.) This “fund swap” price risk under the “early cut off” option should be unacceptable to any plan fiduciary. The standard option, which allows for late / after- hours exchange file submission (i.e. same day trading), should be preferred for any plan which includes ETFs (despite its slightly higher program cost). This difference is not well known among the plan sponsor community or even by many service providers, but it is critical to understand the impact of the ETF trading choice made.
AUDIT ISSUES
An emerging area of concern among plan auditors is potential pricing discrepancies due to the inter-day trading of ETFs. When “sampling” a mutual fund price for verification, it is rare to find divergences from the 4 pm close. But which ETF price is used to report plan fund balances? What if different prices are reported for the same day depending on participant level fund(s) activity?
MANAGED MODELS
Finally, another development worth noting is the ability of recordkeepers and custodians to offer third party managed “models” on their platforms. These customized strategies are managed by investment advisors, who increasingly use ETFs as a primary component. Each “model portfolio” is “unitized” on the RKS so that the model is treated just like a mutual fund. All trading activity is “marked” using the 4 pm closing price of ALL the model holdings (including MFs). This solution embeds “same day settlement” into its foundational architecture and is a good example of how technology can evolve to meet challenges presented by changes in the collective fund marketplace.
ETFS IN SELF-DIRECTED BROKERAGE ACCOUNTS (SDBA) Given the trading cycle challenges described above, ETFs at present are probably better suited for use by retirement plan investors via a Self-Directed Brokerage Account (SDBA). (See my Spring 2025 INSIGHTS article “Self-Directed Brokerage Accounts in Defined Contribution Plans” for more information.) SDBAs are common in large plans and are not difficult to add, provided there is good integration with the plan’s RKS.
PROS & CONS OF ETFS IN SDBAS
ETFs offer a robust investment opportunity set that is equal to that of MFs. ETFs also have no share class distinctions (i.e. different fee structures), and they generally have lower operating expenses (OER, or operating expense ratios). And, since most brokerage platforms are “commission free,” there are effectively no trading costs for ETFs other than being mindful of a fund’s bidask spread (buying between the spread if possible).
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Schwab & Co. offer their “OneSource” MF marketplace, where investors can access m MF “institutional class” shares withoutFEATURE a transaction fee. Otherwise, transaction fees apply to these lowest cost institutional share classes. Plan sponsors are wellSPRING advised examine these transaction fees closely before adding a SDBA to their plan. 2026
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However, using mutual funds in a SDBA presents some challenges. Lower priced “retirement share
Plan sponsors will continue
Finally, to ETF trading, it are is architected common in custodial the investment commu classes” (R6with etc.) areregards not available in brokerage accounts, which off retail to have apractitioner wide selection of platforms. Also, lower-priced “advisor share classes” have limited availability unless the participant existing MFs to choose from, toengages execute a true fund swap by buying/selling a MF and using the proceeds or se an investment advisor to manage their portfolio. but these funds might to best buy be viewed as “legacy” products. MFs that are available in a brokerage account are offered under negotiated agreements between ETF (or vice(sponsor) versa) using a “market onlikeclose” (MoC) order the This effectiv That said,ETF. MF sponsors the MF company and the brokerage firm. Larger firms Charles Schwab & Co. offer their type for are continuing to innovate. “OneSource” MF marketplace, where investors can access many MF “institutional class” shares without a “book matches” all fund price share “slippage”). participant For retirement plans, one using a S transaction fee. Otherwise, transaction feesprices can apply to(eliminates these lowest cost institutional classes. Plan Any of the more useful recent sponsors are well advised to examine these transaction fees closely before adding a SDBA to their plan. can trade the same way, but most are not aware of how to do this (ask the SDBA broke developments is the inclusion of Finally, with regards to ETF trading, it is common in the investment practitioner community to execute “lifetime income” features in a a true fund swap by buying/selling a MF and using the proceeds to buy or sell an ETF (or vice versa) account trading desk). target date fund (TDF). Another using a “market on close” (MoC) order type for the ETF. This effectively “book matches” all fund prices (eliminates price “slippage”). Any participant using a SBDA can trade the same way, but most are not aware of how to do this (ask the SDBA brokerage account trading desk).
emerging and useful feature is the inclusion of private investments (credit, equity, real estate, infrastructure etc.), again within a TDF or CIT product. These are niche funds focused on qualified retirement plans, however, and may not be available to a retail investor. ETFs are the future of investing, but operational hurdles can present additional challenges when trying to incorporate their use in company-sponsored retirement plans. The good news is that participants can gain unlimited access to all publicly traded ETFs through a Self-Directed Brokerage Account (SDBA), allowing them to construct their own unique portfolio best suited to their investment objectives and risk tolerances.
Conclusions CONCLUSIONS The launch of new “mainstream” US mutual funds has ground to a virtual halt due to t The launch of new “mainstream” US mutual funds has ground to a virtual halt due to the preference of many investors forof tax-friendly (ETFs). See Exhibit 6. preference manyvehicles investors for tax-friendly vehicles (ETFs). See Exhibit 6. Exhibit 6: Multual FundbyLaunches Exhibit 6: Multual Fund Launches Calendar Year by Calendar Year
Robert E. “Emery” Pike, CFA, AIF, is a Senior Advisor at Sheets Smith Wealth Management Inc. and a member of PSCA’s Investment Committee. Footnotes The author wishes to thank the following organizations and their talented professionals for their assistance in researching this article: American Trust Custody Blackrock Charles Schwab & Co. PCS Retirement Sentinel Group State Street Investment Management T. Rowe Price & Associates Vanguard
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28 SPRING 2026
NQDC by Doug Gardner and Matt Maier
Recapping the 2025 Open Enrollment for NQDC Plans Open enrollment season is a time for executives to reconsider their participation and elections in their orgaization’s NQDC plan. What trends did we see this past fall in choices participants made? AS THE CALENDAR FLIPPED TO JANUARY AND INBOXES FINALLY QUIETED (HOPEFULLY), THE 2025 OPEN ENROLLMENT WINDOW FOR NON-QUALIFIED DEFERRED COMPENSATION (“NQDC”) PLANS OFFICIALLY CAME TO A CLOSE. Behind the scenes, executives were making some of their most consequential pay decisions of the year, weighing taxes, cash flow, retirement readiness, and market uncertainty in a single election. This year’s enrollment period offered a clear snapshot of how organizations are using NQDC plans and how participants are thinking about deferral elections in an increasingly complex financial landscape. And, as always, a well-deserved acknowledgement goes to HR and benefit professionals, who calmly fielded the inevitable wave of last-minute deferral election requests!
MAKING SURE WE ARE ALL ON THE SAME PAGE
NQDC plans are savings plans that allow companies to designate who is eligible to participate and provide opportunities that qualified plans, like a 401(k), cannot offer. These plans can also be used as a “golden handcuff” and provide companies with unique recruitment opportunities and for retaining top talent. A key differentiator is they are not covered under most sections of ERISA and thus not subject to coverage or non-discrimination testing. Employers offering a NQDC plan need to make sure they clearly define eligibility for the plan. An NQDC plan is not meant for everyone. Per PSCA’s 2025 Nonqualified Plan Survey, the average percent of employees eligible for an NQDC plan is 6.5 percent (the same as in 2024 and down from 7.0 percent in 2023). The survey also showed that nearly two-thirds of respondents use job title/ position as the parameter to determine eligibility, while a quarter allow participation by committee approval.
NQDC PLANS CONTINUE AS STRATEGIC RETENTION AND RETIREMENT TOOLS
A clear, continued trend from the 2025 enrollment is that employers increasingly lean on NQDC plans not just as a supplemental retirement vehicle, but as strategic tools for executive retention and recruitment. Industry surveys consistently show that a substantial majority of sponsoring organizations
view these plans as essential for a competitive compensation package. In recent data from Principal (Trends Nov 2025), “about 86 percent of plan sponsors said deferred comp plans help key employees prepare for retirement”, and similar percentages pointed to their value in retention and competitiveness. Non-qualified plans allow executives to defer income beyond 401(k) limits, which is especially important for high earners who often max out their deferrals early in the calendar year. Both employee and employer contributions were most commonly allowed (two-thirds of plans) based on the PSCA 2025 Survey with 97.3 percent of the 305 organizatoins that responded allowing base salary, 86.4 percent allowing bonus deferrals 28 percent allowing short-term incentive pay. As in 401(k) plans, companies can impose deferral percentage limits on how much participants can defer into NQDC Plans. Based upon the PSCA 2025 Survey, 26.1 percent limit participant deferrals to 50 percent of pay, 15.9 percent limit to 25 percent or less. Only 11.6 percent offer a maximum dollar limit. Another consideration for NQDC plans that allow employee contributions from base pay and/or bonus pay, is when deferral elections can be changed. Unlike a 401(k) plan that allows a participant to change their deferral rate at any time, NQDC plans do not provide this flexibility. Once an election to contribute has been made, it cannot be changed until the next open enrollment window (much like health and welfare benefits, minus the qualifying life event provision). There is an exception for unexpected financial circumstances, but plan sponsors must be careful as the regulations are very specific.
PARTICIPATION AND ENGAGEMENT ARE MODERATELY STRONG – BUT NOT UNIFORM
For the enrollment period just closed, eligible participants showed continued solid but not universal engagement. Benchmark data indicates that nearly 90 percent of eligible employees participate in NQDC plans, per the PSCA 2025 Survey, with average deferrals around 10 percent of base pay and nearly a quarter of bonus pay. While participation remains relatively stable, this pattern suggests an ongoing opportunity for employers to boost uptake and deepen engagement.
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Plan education is proving to be a key factor. Per PSCA data, a growing number of employers provide NQDC-specific education and financial wellness recourses, with more than three-quarters offering targeted plan education – a notable increase from just five years ago.
EDUCATION AND SUPPORT INFLUENCE ENROLLMENT DECISIONS
Perhaps the most consistent theme across all NQDC benchmark data is that communication quality matters. Employers that invest in clear, actionable information about how NQDC plans work, including tax implications, distribution timing, and integration with other retirement plans, tend to see stronger participation and satisfaction. More companies are integrating NQDC education into their broader financial wellness initiatives, offering one-on-one sessions with financial professionals or deeper plan walkthroughs during enrollment windows.
This focus responds to a known comprehension gap. Many executives have limited understanding of plan features despite recognizing their value, which can suppress enrollment or lead to suboptimal deferral strategies. Closing this gap will remain a priority for plan sponsors (NFP, Aug 2025). A Case Study In a proactive response to lower plan participation, Seneca Foods Corporation conducted a survey in 2024 to determine participant goals and uncover potential challenges. Nearly twothirds of those eligible participated in the survey and the results were interesting: • A third of respondents stated they did not have a good understanding of the NQDC plan or how it differs from a 401(k) plan. • More than 40 percent never attended a live webinar or watched a pre-produced video outlining the plan. • Nearly a third stated they preferred to participate only in the
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RECORDKEEPERS THAT PROVIDE STRONG REPORTING, PROACTIVE COMMUNICATION, AND COORDINATION WITH PAYROLL AND HR SYSTEMS ARE HELPING REDUCE ADMINISTRATIVE RISK AND PARTICIPANT FRUSTRATION. 401(k) plan and two people received a refund from the 401(k) plan due to the non-discrimination testing results. As a result, Seneca Foods launched a full-blown communication strategy for all eligible participants. Five separate mailings were sent that outlined a certain component of the plan. Each mailing was designed to look like a Seneca Foods product to align it with the company. In their New York and Wisconsin main offices, eligible participants were directly invited (i.e., a meeting invite was sent directly to them) to attend a meeting about the plan. Those not in the two offices were sent a meeting invite to attend a webinar. As with a 401(k) plan, education is important for the success of an NQDC Plan.
TAX AND ECONOMIC CONSIDERATIONS SHAPE DEFERRAL DECISIONS
Enrollment choices in 2025 were also influenced by broader tax and economic dynamics. With recent tax law changes impacting high earners, including adjustments to state and local tax (“SALT”) treatments, deferring income through an NQDC plan can provide meaningful tax strategy flexibility for participants. Some executives used this past enrollment period to lock in deferral elections that could help manage marginal tax rates or avoid deduction phaseouts in future years. Concerns about inflation and future tax rates also fueled interest in deferrals. Strategic planners often view deferring compensation into an NQDC plan as a way to hedge against higher future tax burdens, particularly when immediate income would otherwise push them into high effective tax brackets, notes NFP.
PLAN DISTRIBUTIONS – WHEN AND HOW
Another area that drew increased attention during the 2025 enrollment cycle was distribution planning. More participants are recognizing that the value of an NQDC plan is realized not just at deferral, but at payout. Executives are spending more time evaluating when and how distributions will occur, whether through a lump sum payment, installments, or event-based triggers. Many plans make several options available to participants. According to the PSCA 2025 Survey, the most common are: 1. Single lump sum payment (88.8 percent of respondents); and 2. Annual installment payments (77.6 percent of respondents) Once payment elections are made, NQDC Plans may allow changes, but there are restrictions on changes made. Changes to the original, or updated election, can only be made if the following rules are met:
1. The new Distribution Election cannot take effect for twelve (12) months. 2. If the original Distribution Election provided for distribution to be made or begun at a specified age or time or upon your separation from service, the new Distribution Election must further defer the time of distribution for at least 5 years from the time that applied under the original election. 3. If the original Distribution Election provided for distribution to be made or began at a specified age or a specified time or at separation from service, the new Distribution Election must be made at least 12 months before that date. Keeping these rules in mind along with longer careers and phased retirements, executives are becoming more intentional with their distribution elections. As a result, plan sponsors are seeing greater interest in greater distribution options and clear education around how elections interact with Section 409A rules.
PLAN RECORDKEEPING
Alongside this focus, recordkeepers are playing a more visible and critical role in the participant’s experience. In 2025, many organizations leaned on their recordkeepers to support increasingly complex distribution modeling, election tracking, and compliance oversight. Participants expect clear dashboards, reliable projections, and seamless execution when distributions begin. Recordkeepers that provide strong reporting, proactive communication, and coordination with payroll and HR systems are helping reduce administrative risk and participant frustration. As plans mature and balances grow, the operational reliability of recordkeepers is becoming just as important as plan design itself, particularly for ensuring distributions are processed accurately, timely, and in strict compliance with plan rules and regulatory requirements.
LOOKING AHEAD
The 2025 open enrollment period underlined that NQDC plans are far from a static offering; they are evolving benefits that help companies compete for top talent and help executives manage retirement readiness in a complex tax and economic landscape. As organizations refine communication, broaden educational support, and align plan design with participant needs, participation and perceived value are expected to remain strong. By Doug Gardner, Director, Corporate Retirement Services Seneca Foods Corporation. Matt Maier, Vice President Senior Consultant Lockton Investment Securities, LLC
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COMPLIANCE CORNER by Adam Greetis
Practical Lessons from Spence v. American Airlines The judgement in a recent ERISA case provides some key guidance and takeaways for plan sponsors. ON SEPTEMBER 30, 2025, AFTER A TRIAL AND EARLIER FINDINGS THAT AMERICAN AIRLINES AND ITS EMPLOYEE BENEFITS COMMITTEE (EBC) BREACHED ERISA’S DUTY OF LOYALTY, JUDGE REED O’CONNOR OF THE NORTHERN DISTRICT OF TEXAS ISSUED HIS FINAL JUDGMENT IN THE SPENCE V. AMERICAN AIRLINES LITIGATION.
issued a significant injunction requiring American Airlines to overhaul aspects of its retirement plan governance.
The litigation was one of the more talked about (and perhaps misunderstood) ERISA cases in 2025. This article summarizes the core findings of the case and—most importantly— provides some practical takeaways.
1. Strict limits on proxy voting The Court prohibited American Airlines from allowing any proxy voting motivated by interests that were not financial in nature, including ESG-related goals.
BACKGROUND: WHAT SPARKED THE CASE?
2. Governance restructuring The Court required American Airlines to appoint at least two independent members to the EBC —individuals with no relationship to any plan investment manager – who are to remain members of the EBC for five (5) years.
A participant in the American Airlines defined contribution plan alleged that American Airlines and the EBC allowed ESG-related corporate objectives and the ESG priorities of an investment manager to improperly influence retirement plan management. The plaintiff alleged that American Airlines and the EBC put non-financial objectives ahead of the financial best interests of plan participants in violation of ERISA. In January 2025, the Court ruled that the defendants breached ERISA’s duty of loyalty, the duty that requires plan fiduciaries to avoid or manage conflicts of interest and place the interests of plan participants first. The Court also ruled that defendants did not breach ERISA’s duty of prudence, the duty that requires plan fiduciaries to be informed and to make thoughtful, educated decisions. The Court reached this conclusion because the company’s monitoring practices were consistent with industry norms. On September 30, 2025, Judge O’Connor issued his final judgment focusing on damages. Judge O’Connor found no proof of actual financial losses and concluded that American Airlines was not required to pay monetary damages. However, the Court
THE FINAL JUDGMENT: NO MONETARY DAMAGES, BUT MAJOR STRUCTURAL CHANGES These are the key components of Judge O’Connor’s ruling:
3. Enhanced reporting and participant communication The Court required American Airlines to provide annual reports and certifications to plan participants demonstrating compliance with ERISA’s duty of loyalty. 4. Transparency obligations The Court required American Airlines to publicly disclose any involvement in ESG- or DEI-related organizations, including the terms of membership. 5. Restrictions on asset manager relationships The Court prohibited American Airlines from using investment managers who own more than three percent of American Airlines stock, or hold its fixed debt, without adequate firewalls to prevent conflicts of interest.
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WHAT THIS MEANS FOR PLAN FIDUCIARIES: KEY PRACTICAL TAKEAWAYS
These findings have left many plan sponsors and plan fiduciaries asking whether the opinion is an “outlier” or a critical vehicle for providing more color to ERISA’s duty of loyalty. The reality is that the opinion is probably somewhere in between those two extremes given the unique facts of the case but it does provide plan sponsors and plan fiduciaries with an opportunity to consider some very simple and very efficient ways they can address certain of ERISA’s requirements and demonstrate their attention to these requirements. 6. Proxy Voting Refresh The Court devoted considerable time to proxy voting. This took many plan fiduciaries and their investment consultants by surprise as discussing proxy voting isn’t a common committee meeting
agenda item. Judge O’Connor emphasized that regardless of whether an outside entity actually votes proxies, the plan’s internal plan fiduciaries must monitor the practice in some fashion. So, what now? Because most plan sponsors and internal plan fiduciaries aren’t as familiar with how proxy voting works in their plans, there are some simple steps sponsors and fiduciaries can take. Practical Takeaways: • Start with your outside investment consultant. Ask the consultant to explain to you how proxy voting works in general. • Ask your consultant to also explain how proxy voting works in your plan. The process can differ depending on what kinds of investment options your plan offers (i.e., mutual funds, collective investment trusts (CITs), separate accounts, etc.) For the vast majority of plans that include mutual funds and
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7. Expect Greater Scrutiny of ESG-Related Activities Whether or not your organization uses ESG-branded funds, any ESG-related factor considered in voting, engagement, or investment may trigger scrutiny. Courts may view even indirect ESG involvement as potentially non-pecuniary. Many observers and practitioners see this case as part of a broader legal and political backlash against ESG. Practical Takeaways: • Ask your investment consultant to confirm that all investment managers have made their investment decisions in a pecuniary (i.e., financial) manner.
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CITs, the financial services firms that offer those investments vote the proxies themselves because they are the legal beneficial shareholder of the underlying equities in their mutual funds and CITs. • Ask your consultant to explain to you the basics of the proxy voting policies that these asset managers maintain. (A detailed review of each of those policies is probably not a worthwhile exercise.) • Ask your consultant to confirm that the investment managers’ proxy voting guidelines include financial-only objectives. • And most importantly, document in the meeting minutes that the sponsor and fiduciary conducted this proxy voting review.
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ONE OF THE BIGGEST LESSONS FROM THE SPENCE CASE IS A LESSON WE TRY AND TEACH OVER AND OVER AGAIN AND THAT IS THAT DOCUMENTATION MATTERS. ALTHOUGH AMERICAN AIRLINES WAS FOUND TO HAVE BREACHED ITS DUTY OF LOYALTY, THE COURT DID NOT FIND IMPRUDENCE BECAUSE AMERICAN AIRLINES’ DUE DILIGENCE PRACTICES WERE CONSISTENT WITH INDUSTRY STANDARDS AND WERE WELL-DOCUMENTED.
• Ask your investment consultant to identify whether any investment managers have used ESG-related factors in their voting, engagement and investment activities. • And most importantly, document in the meeting minutes that the sponsor and fiduciary explored these issues and their outcome. 8. Revisit Committee Composition and Independence The Court required American Airlines to add independent committee members for five years—an unusual and significant remedy. Practical Takeaways: •A dd as a meeting agenda item a discussion of each committee member’s responsibilities to the plan sponsor (their “day job”). •D ocument any committee member’s relationship (or lack of relationship) with any investment manager. •A nd most importantly, document in the meeting minutes that the sponsor and fiduciary conducted this review of the members’ corporate responsibilities. 9. Increase Transparency to Reduce Risk Even though this transparency requirement is specific to the American Airlines case, the expectation of greater public disclosure of ESG- and DEI-related organizations may spread. Practical Takeaways: • Plan fiduciaries might consider compiling a current list of organizational memberships connected to ESG, DEI, or sustainability. • Plan fiduciaries could explore the responsibilities of those memberships and whether any committee member participates in the organizations as a member.
• Presumably you’ll find that there exists no conflict between these organizations and management of the plan. It would be important and essential to document in the meeting minutes the lack of such conflict. 10. Thoroughly Document the Financial Rationale Behind Fiduciary Decisions One of the biggest lessons from the Spence case is a lesson we try and teach over and over again and that is that documentation matters. Although American Airlines was found to have breached its duty of loyalty, the Court did not find imprudence because American Airlines’ due diligence practices were consistent with industry standards and were well-documented. Practical Takeaways: • Keep detailed records of committee decisions. • Retain meeting minutes. • Ensure that vendors and consultants provide clear performance and risk metrics that reinforce financial-only intentions.
THE BIG PICTURE
Here’s a summary of what plan sponsors might take away from Spence v. American Airlines. • Educate yourselves on proxy voting to confirm that proxies are being voted on for financial objectives. • Consider and document your committee members’ day jobs and document the lack of any conflict of interest with the plan. • Always document your process and your decisions. Adam Greetis is a Partner with Seyfarth Shaw LLP and a member of PSCA’s Government Affairs Committee.
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36 SPRING 2026
HSA by Valerie Burns, Cynthia Obenland, and Jennifer Snider
The Smart Way to Support Health Savings Accounts Unlike most defined contribution plans, most HSA programs do not provide employer contributions as an employer match even though a matching contribution is well known to increase savings rates – what are the barriers to an HSA match and is there a solution? It may not be as complicated as you think. IN 401(K) AND 403(B) PLANS, AN EMPLOYER MATCHING CONTRIBUTION IS COMMONLY CONSIDERED STANDARD FROM A PLAN DESIGN STANDPOINT. In the most recent PSCA 401(k) and 403(b) annual surveys, 81 percent of employers with 401(k) plans and 69.7 percent of employers with 403(b) plans do provide an employer matching contribution. Employers may have different matching calculations or vesting schedules for the employer contribution, but the wisdom for providing an employer matching contribution, to help spur employees to also contribute for their retirement, is commonplace. The same cannot be said for Health Savings Account (HSA) programs. The importance of an HSA benefit cannot be overstated. The benefit provides a triple tax savings to participants – payroll contributions are pre-tax, interest earned on the account balance is tax free, and as long as money is spent on qualifying expenses, it is also tax free. HSA’s can be an important part of longterm retirement planning strategies. By building up
the HSA balance before retirement, this can be used for healthcare expenses in retirement instead of relying on other sources of retirement income (pensions, investments, 401(k) or 403(b) plans). But even if a participant is using their HSA only for current healthcare costs before they reach the deductible, they still receive the same triple tax savings. If there is agreement by employers on how valuable of a benefit the HSA is to employees and the importance of employees contributing to their HSA, why are employer HSA matching contributions uncommon? In the most recent PSCA HSA annual survey, only 9.3 percent of employers have an HSA matching contribution strategy. Could it be that employers do not understand how a matching contribution strategy would work for their HSA? PSCA’s November 2025 Member Roundtable dove into this topic. The roundtable gave
an opportunity for participants to talk through the logistics of how an employer HSA matching program could work, steps to setting one up, and lessons learned.
IT DOESN’T HAVE TO BE COMPLICATED!
If thinking about doing an HSA matching program, first identify the reason for it – the proverbial “Why.” Maybe you want to encourage your participants to partner with you in contributing to their HSAs because that will help them better prepare for their healthcare costs. Maybe you would like to pivot away from continuing to provide seed money on an annual basis and spread the cost over the year. Once the “Why” has been addressed, the next step is to determine how to design a matching program that supports that “Why.” Whereas many 401(k) or 403(b) plans use percentage calculations for the employer match, your HSA matching program can be more straightforward. It does not have to have a complicated percentage calculation. Matching on dollars contributed may be easier for
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participants to understand and to administer. Consider, for example, a matching program that states that the employer will match dollar-for-dollar up to the first $20 a participant contributes from their paycheck. If the company is on a bi-weekly payroll, the maximum yearly HSA contribution the employer would make is $520 per participant. That annualized amount could be used for budgeting purposes – the employer knows at the beginning of the year what their maximum contribution expense will be and that this expense will be recognized throughout the year. Think about communicating to participants – the simpler the program is, the easier to understand the “what’s in it for me” aspect. Participants can more easily ‘math out’ what they want to contribute to their HSA knowing what they will get in an employer match. In the example above, a participant who wants to contribute $5 per paycheck knows that they will receive $5 from the company. Someone who wants to contribute $100 per paycheck knows
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that they will receive $20 from the company. Neither participant is having to run projection calculations using percentages and having to consider how a change in an identifying element may change the amount of employer HSA contribution they receive.
HERE’S WHERE IT MAY BECOME COMPLICATED . . .
The common pain point that was referenced by the roundtable participants is
in the system setup – either on the payroll side or the benefits system side. It is very important to have those conversations early in the information gathering phase for what the systems can/cannot do to meet the matching contribution program’s needs. Manual workarounds or system logic changes may be needed, and if so, you will want to know early in the process. Do not wait until the last minute to consider system setup issues!
Using an HSA matching strategy may be something to consider for your next benefit plan year. Coming up with a proposal and getting all parties of interest (finance, accounting, payroll, HR, benefits, HRIS, communications) together early in the process will be key. And as a starting point, leverage your HSA provider! They should be able to help you design a matching program that meets your organization’s needs or at the very least, provide information that you
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can leverage in support of your HSA matching program proposal. And if you do implement an HSA matching program, at a future PSCA roundtable you could be a shining example of what is possible! Valerie Burns, PHR, SHRMCP, CPSP, is the HR Director for IFP Motion Solutions Inc. Cynthia Obenland, is the Director, Benefit Solutions, for Precision Medicine Group, and chair of PSCA’s HSA Committee. Jennifer Snider is the Director, Total Rewards, for Classic Collision.
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by Melissa Hudson
New Year, New Limits: Your 401(k) Action Plan Starting the year with a simple communication about the increased contribtion limits when many particants are already focusing on new year’s resolutionis and revisitng financial goals for the year can be an effective way to set a savings tone for the year. A NEW YEAR ALWAYS BRINGS FRESH CONTRIBUTION LIMITS, SHIFTING EMPLOYEE EXPECTATIONS AND RENEWED SCRUTINY OF RETIREMENT PLAN EFFECTIVENESS. For plan sponsors, it’s the perfect moment to step back, recalibrate, and set a clear action plan for the year ahead. Early and midcareer HR and benefits professionals often juggle competing priorities but a thoughtful startofyear review can strengthen plan operations, improve participant outcomes, and reduce compliance headaches down the road.
UNDERSTANDING THE NEW LIMITS
Annual contribution limits typically rise to keep pace with inflation, and even modest increases can meaningfully change participant behavior. Many employees rely on automatic escalation or setandforget deferral rates, so they may not adjust on their own. Some employers do not offer this but as plan sponsors, we need to step in and provide education and reminders to employees. • Reviewing annual limit changes helps you anticipate participant questions and update communication materials. • Coordinating with payroll ensures systems reflect new thresholds before the first payroll of the year. • Checking employer match formulas confirms that increased limits don’t unintentionally reduce
the number of employees receiving the full match. A brief reminder campaign—delivered through email, intranet, or onboarding channels—can help employees understand what the new limits mean for them without overwhelming them with technical jargon.
REFRESHING PLAN GOVERNANCE
The start of the year is an ideal time to revisit your governance calendar and confirm that fiduciary processes are running smoothly. •U pdating committee charters keeps roles and responsibilities clear as teams evolve. •R eviewing service provider performance ensures vendors continue to meet expectations on accuracy, timeliness, and participant support.
• Evaluating fee reasonableness helps maintain transparency and demonstrates prudent oversight. Even if your plan has a mature governance structure, documenting these activities reinforces good fiduciary hygiene and prepares your team for future audits or leadership transitions.
whether employees are taking advantage of tax diversification opportunities. Small adjustments can have a big impact on longterm outcomes, especially when paired with clear communication.
STRENGTHENING PLAN DESIGN
Employees often begin the year with renewed motivation to improve their financial lives. This is a valuable moment to meet them where they are. • Launching a simple education campaign focused on budgeting, emergency savings, and retirement basics can build confidence. • Highlighting digital tools—such as calculators or retirement income projections—helps employees visualize progress. • Coordinating with wellness programs creates a more holistic approach to financial health. Avoid overwhelming employees with too much information at once. Short, targeted messages tend to
Plan design trends continue to evolve, especially as employers compete for talent and respond to employee financial stress. Earlycareer workers often need help building savings habits, while midcareer employees may be balancing retirement goals with other financial priorities. • Assessing automatic enrollment and escalation can improve participation and savings rates without requiring employees to take action. • Revisiting eligibility rules ensures your plan aligns with workforce patterns, including parttime or seasonal employees. • Reviewing Roth versus pretax utilization helps you understand
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ENHANCING PARTICIPANT ENGAGEMENT
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resonate more than dense plan summaries.
CONDUCTING AN OPERATIONAL CHECKUP
Operational errors often stem from small oversights— incorrect compensation definitions, late deposits, or mismatches between plan documents and payroll practices. A beginningofyear review can prevent issues before they snowball. • Comparing plan documents to payroll codes ensures contributions are calculated correctly. • Confirming timely deposit procedures reduces compliance risk. • Reviewing loan and distribution processes helps maintain
consistency across HR, payroll, and recordkeeping teams. Catching issues early is far easier than correcting them later.
SETTING THE TONE FOR THE YEAR
A wellstructured 401(k) action plan positions your team for a smoother year and supports employees in building longterm financial security. By focusing on limits, governance, design, engagement, and operations, plan sponsors can create a strong foundation for the months ahead. Melissa Hudson is the Corporate Director of Benefits for Herschend Entertainment Company and a member of PSCA’s Education and Communication Committee.
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401(k) GOVERNANCE CHECKLIST FOR THE NEW YEAR ✔️ Committee Charter Review • Confirm roles, responsibilities, and membership are current. ✔️ Service Provider Performance Check • Evaluate accuracy, timeliness, and participant support. ✔️ Fee Reasonableness Review • Compare fees to market norms and document findings. ✔️ Investment Menu Evaluation • Review performance, risk, and suitability of each option. ✔️ Fiduciary File Update • Ensure minutes, reports, and decisions are organized and complete. ✔️ Compliance Calendar Refresh • Map out deadlines and recurring oversight tasks.
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NQDC RESEARCH
Participation in NQDC Plans is Growing The results of PSCA’s recently released NQDC plan survey show increased plan participation last year and more integration of financial wellness programs. PSCA’S 2025 NONQUALIFIED DEFERRED COMPENSATION (NQDC) PLAN SURVEY REVEALED STRONG GROWTH IN EXECUTIVE PARTICIPATION AND CONTINUED EVOLUTION IN PLAN DESIGN AS EMPLOYERS COMPETE FOR AND RETAIN HIGHLY COMPENSATED TALENT. The survey, sponsored by Empower, Gallagher, Lincoln Financial, and Principal Financial Group® reflects plan data from 305 organizations sponsoring account-balance NQDC plans and was conducted in the third quarter of 2025. Nonqualified plans remain a critical tool for organizations seeking to attract, retain, and align senior leadership. This year’s data shows employers expanding competitive plan features, education, and integration with broader financial wellness strategies.
EXCLUSIVE ELIGIBILITY
Most employers restrict NQDC plan access to a select group of employees. An average of 6.5 percent of total employees were eligible to participate in respondent NQDC plans in 2025, the same as the year before. Nearly two-thirds of plans use job title/position to determine NQDC plan eligibility, while a quarter require committee approval. For plans that use more than one eligibility requirement, 43.3 percent require employees to meet both requirements while 56.2 percent allow them to meet one or the other.
HIGH PARTICIPATION
Seven in ten eligible executives maintain an NQDC account balance, the highest level recorded by PSCA. Nearly forty percent of eligible participants make contributions to their own accounts.
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Percentage of Eligible Employees with a Plan Balance
Average
2016
2017
2018
2020
2022
2023
2024
2025
60.4%
58.8%
53.4%
66.1%
61.1%
63.0%
61.2%
69.8%
MEANINGFUL DEFERRALS
Participants contributed an average of 10 percent of base salary and an average of 23 percent of bonus pay to their NQDC plan in 2025. The average NQDC plan balance in 2025 was $542,650.
EMPLOYERS CONTRIBUTE
Nearly 80 percent of employers contribute to NQDC plans, with almost half offering a “restoration match” to replace benefits lost due to qualified plan limits. Nearly 30 percent of plans provide for a discretionary employer contribution not based on employee contributions, and 11.9 percent make a fixed non-matching contribution to all eligible employees.
FUNDING DISCIPLINE
Two-thirds of plans set aside assets to meet future obligations, with more than 90 percent using a Rabbi trust. Respondent plans indicated that, on average, approximately 85 percent of future benefit obligations have been set aside.
FLEXIBLE DISTRIBUTIONS
Nearly three-quarters allow distributions at separation from service, while almost two-thirds permit in-service distributions at a participant-elected date.
EDUCATION RISING
More than three-quarters of organizations provide NQDCspecific education, and more than a third now include NQDC content within holistic financial wellness programs – up from 25 percent last year.
Employer Contributions Formulas Used Allowed in the Plan Over Time Contribution Type
All Plans
Fixed Match
25.2%
Restoration Match Up to the IRS Limit
37.6%
Restoration Match Beyond the IRS Limit
8.8%
Graded/Tiered Match
4.4%
Age or Service Based Non-Matching Contribution
19.9%
Fixed Non-Matching Contribution to All Eligible Employees
11.9%
Discretionary Non-Matching Contribution
27.4%
PLAN DESIGN AND SATISFACTION
The survey shows strong employer confidence in current NQDC plan structures. Nearly 79 percent of sponsors report being satisfied or very satisfied with how their plan meets organizational objectives, while participant satisfaction remains similarly high.
LOOKING AHEAD
Vesting approaches for those employer contributions vary, with employers balancing immediate vesting against graded or cliff schedules to support retention goals. Immediate vesting is available at more than a third of companies, 36.8 percent use a graded vesting schedule, and a quarter of plans use a cliff vesting schedule.
Vesting Policies for Employer Contributions
While more than half of sponsors made no plan changes in 2025, those that did focused primarily on eligibility adjustments, education initiatives, and plan design enhancements, signaling continued refinement rather than wholesale redesign. The growing emphasis on education and financial wellness reflects a broader shift. Employers are not just offering NQDC plans—they’re making sure executives understand and fully leverage them. PSCA’s full 2025 Nonqualified Deferred Compensation Plan Survey provides detailed benchmarking data on eligibility, contributions, investments, distributions, and administration practices. Hattie Greenan is PSCA’s Director of Research and Communications.
Vesting Policy
All Plans
Immediate Full Vesting
34.2%
403(b) Plans
36.8%
Cliff Vesting
25.1%
Other
3.9%
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42
by Nevin Adams
Miha Creative / Shutterstock.com
SPRING 2026
RETIREMENT READ(Y)
Managed Accounts — It’s Not (Just) the Allocation New research from Morningstar shows that use of managed accounts does increase retirement savings – but the reason why may surprise you. MANAGED ACCOUNTS (MAS) HAVE BEEN PRAISED, CRITICIZED, AND LITIGATED — OFTEN ON THE THEORY THAT THEY’RE LITTLE MORE THAN EXPENSIVE TARGET-DATE FUNDS. However, a recent report quantifies their impact — and turns out, it’s not an investment story, it’s behavioral. That report — inauspiciously titled “The 2026 Managed Accounts Research Series: Analyzing the Value of Managed Accounts” — was published in mid-January
by Morningstar. Of course, Morningstar has a fair amount of “skin” in the managed account space — a reason, if you will, to find a favorable outcome for the design. And, sure enough, the analysis claims that managed accounts outperform targetdate funds and the efforts
of so-called “do-it-yourself” investors for — well, everyone. More specifically, the report claims that MAs increase the median wealth/salary ratio at age 65 by 5.9 percent for TDF investors and by 11.4 percent for DIY investors. Across all plan participants, adopting an MA led to an overall increase of 7.7 percent. Oh, and it does even better for younger participants, and lowerincome individuals.
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At this point, my natural cynicism kicked in — though based on my personal and significant experience working with Jack VanDerhei, one of the coauthors, over a period of decades during his long-standing tenure at the Employee Benefit Research Institute (EBRI) — well, let’s just say if Jack says something is “so,” I tend to believe him. Following the report publication, I had an
RETIREMENT READ(Y)
43 SPRING 2026
BASED ON OUR ANALYSIS OF THE EMPIRICAL DATA, MA USERS CONSISTENTLY SAVE MORE THAN TDF OR DIY INVESTORS, EVEN AFTER CONTROLLING FOR AGE, WAGE, TENURE, AND PLAN DESIGN FEATURES.
opportunity to talk with Jack (and Spencer Look, his collaborator in this effort) to better understand their model. For those who haven’t stumbled across the report, they take a significant database of actual 401(k) plan balances and activity and apply sophisticated statistical behavioral modeling techniques to project longterm outcomes based on various assumptions. While it’s not unusual for researchers to deploy statistical modelling, most suffer from a lack of actual data, not only as a baseline, but as a behavioral predictor. Which, I should add, explains (to me, anyway) why the results often don’t match up with how real people respond/ react in the real world. All that said, this kind of modelling is also dependent on the quality of the underlying assumptions — and here none is perhaps more focused on than cost. Here the assumptions are 40 basis points cost for managed accounts (plus another 31 basis points in fund fees), 30 basis points for target-date funds, and 73 basis points for
the DIY group. Don’t like those assumptions? VanDerhei is willing to plug in different numbers. I also questioned whether it makes sense to model “managed accounts” generically, given the wide variation in personalization, design, and cost. Look explained that their review of roughly half a dozen managed account structures — including but not limited to Morningstar’s — showed sufficient similarity to support a generalized model. The same held true for target-date funds. But here is the part that matters… As important as factors like cost and asset allocation (not to mention the cost of asset allocation) are to outcomes, the report acknowledges that “…higher contribution rates are the primary driver.” The researchers further note that, “based on our analysis of the empirical data, MA users consistently save more than TDF or DIY investors, even after controlling for age, wage, tenure, and plan design features” — a pattern
they say “…suggests that personalized savings-rate recommendations[i] embedded within MAs play a key role in encouraging higher savings rates.” While you have to go to page seven of the 19-page report to find that,[ii] to my eyes, it is the most important sentence in it. Now, I’ve long said that while we talk about “managed accounts” as though they are a monolithic concept, they are not. There are different — in some cases, widely different — levels of personalization deployed — variations in cost and construct. Anyone who ignores these potential underlying differences in application is missing the point. I will admit that in considering the value of
managed accounts, I had — perhaps as many of you — tended to focus more on the differences in asset allocation that might be possible if we knew more than projected retirement date — not to mention variation in the underlying costs. What I had not factored in was what the Morningstar researchers have — the application of personalization to influence and impact savings rates. If managed accounts meaningfully increase savings rates — not just tweak allocations — that changes the fiduciary conversation entirely. Because better investing matters. But saving more matters more. Nevin Adams is the former Chief Content Officer for the American Retirement Association.
Footnotes [i] It’s worth noting here that the impact is smaller, but still positive, for AE with escalation plans, with TDF investors seeing an increase of 2.7% and DIY investors seeing an increase of 7.8%. Moreover, approximately 92% of AE plans with auto-escalation show an improvement in the median projected retirement wealth for TDF investors under the MA scenario. In other words, while automated increases in salary deferrals help, those timed and personalized via the managed account platforms provide a superior result. [ii] It IS, however, right there with the first findings. Apparently, the folks who created the executive summary didn’t view it as being as significant as I did.
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44 SPRING 2026
PLAN SPOSNOR PERSPECTIVES by Hattie Greenan
Tracking Down Those Missing Participants Members weigh in on creative solutions to track down missing participants and get them to respond to you once you do. FOR EACH ISSUE OF PSCA’S QUARTERLY MAGAZINE WE ASK MEMBERS THEIR OPINION ON A TOPIC FOR THIS ARTICLE. This issue’s question came from a PSCA member looking for insights on tracking down missing participants. Her question was: “What creative ways (not your standard stuff) have other plan sponsors used to find missing participants or gotten unresponsive participants to respond to them?” Tracking down missing participants can be an ongoing challenge for plan sponsors, and one that drains time and resources that could be better spent elsewhere. This member reached out looking for any “out-of-the-box” ideas for getting missing participants to respond. One response stood out as particularly creative, not just for the concept, but for the detailed and nuanced approach: For getting unresponsive participants to respond (those we feel like we know where they are they just won’t return our calls or emails or respond to our mailings): Birthday cards - An actual birthday card that is blank on the inside. We hand write a note telling them who we are/ that we have been trying to
contact them about a pension benefit/how to contact us, etc. Mail it a little before their birthday. Use an actual stamp and hand write the address, so it looks like a regular birthday card. Do not include a return address, so they have to open it to see who it’s from. If we are desperate, we have used this same strategy with regular note cards or seasonal cards so we can mail them at any point in the year. I estimate about a 30-40% success rate. Not great but considering we couldn’t get them to contact us at all before, we’ll take it. It is in the details of hand writing the address, including an actual stamp, not including a return address, and mailing it a little bit prior to their birthday that makes this approach a little bit diabolical (I want this person on my team in a zombie apocalypse), and creatively successful. A couple other responses echoed this personalized approach and noted that methods that connect with people in some way and humanize the interaction can be effective:
“Interestingly, beyond traditional outreach methods such as email or phone calls, I have found text messaging to be highly effective. While some plan sponsors may view texting unresponsive participants as unprofessional, my experience has shown the opposite. Most people today have frequent, daily access to their mobile devices and often appreciate a personalized text message. At times, I even incorporate emojis for a friendly, human touch. This approach helps create a more approachable, down-to-earth connection with participants, rather than an email that may unintentionally feel formal or corrective. Many plan sponsors are HR professionals, and at the heart of HR is a focus on people. Communicating with participants on a personal level, while leading with empathy and understanding, can be a highly effective engagement strategy. When traditional methods fall short, this approach is worth considering and may yield surprisingly positive results.” “Reaching out and making it personal helps, if you know the individual, ask how they are doing, how a family
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member is if you know them, by starting off the email this way it catches their attention and they are more likely to read the email and respond. If it is a formal “cookie cutter” template, they are less likely to read or respond to the notification.” Other responses expressed frustration in any creative methods to get responses: Hiring outside vendors to do searches and letters provide nominal results. Sometimes the dollar amount of the check is so low they don’t want to be bothered. I’m partnering with my recordkeeper now to do a robust project to try and reunite the participants with their funds. Auto-portability sounds great, but there are some security and privacy issues that have caused us to take a wait and see approach before adopting that new option. I wish legislation would be passed to create a federal lost participant database. Other than that, there aren’t too many new ways to lead the horse to water. If others have done something creative, I’m open to suggestions. We probably
45
PLAN SPOSNOR PERSPECTIVES
tilialucida / Shutterstock.com
SPRING 2026
have more stale checks than some peers have participants in their plans. One member has multiple approaches – perseverance for her seems to pay off: 1. U se their LinkedIn profile to see where they are currently working. Then I call the company and the participant usually remembers my name and is happy I called. 2. Recently couldn’t find a participant and just randomly googled her name and it came up that she was the contact at a church where she lived. She was working at the church. Turned out all her returned mail actually had her correct address. Apparently there seems to be some postal issues. 3. HR provided email addresses and phone numbers from the participants exit interview. It took 6 months, several emails
☹
and three phone calls but they finally got back to us with updated information. 4. One person was really good friends with another person still working at our company, so I asked them for their phone number and called them. They were happy I called because they had totally forgotten about it. 5. Our provider charges a very small fee to track down missing participants so that is always an option as well. Other tools members have found helpful include: • Zabasesrch is an Internet tool I’ve used to help locate people in the past. • FaceBook stalking • We have “double engaged” vendors to assist us in reuniting Plan Participant Uncashed Checks (“UCC”). We engage our recordkeeper to conduct searches
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using various levels of search criteria as well as a vendor specializing in Automatic Plan Rollover (ARO) and participant searches. Combining both vendors we have tripled our previous reunification rate. • Not creative but as a lot of our participants move and don’t update their addresses, we use the CLEAR product from Thomson Reuters to search for the most up to date contact information. We have a 50% success rate using this product. • I have tried this with our small plans – it is also beneficial when contacting persons to request they add a beneficiary. Direct email communication. The email is generic and does not provide account information. The email requests the participant contact either the plan sponsor or the
recordkeeper to verify potential missing account / add beneficiary. • We began using the company called Plan Notice. They distribute all of our required notices and track down participants. They also manage all returned mail. I appreciate that they track everything including all attempts they make. And, their annual cost is feasible and can be paid from forfeitures. As is often the case when working with people, there is no one-size-fits all approach to solving this and no one approach solves the problem completely. Technology, human connection, personalization, and at the end of the day, perseverance, seems to be the winning combination to track down “missing” participants and getting them to cash their checks. Hattie Greenan is PSCA’s Director of Research and Communications.
46 SPRING 2026
WASHINGTON WATCH by Josh Oppenheimer
How 2026 Could Shape the Next Decade Litigation reform, fiduciary standards, broad financial security, and laying the groundwork for SECURE 3.0 is on the agenda for 2026. WASHINGTON, D.C. IS NO STRANGER TO DRAMA, BUT RARELY DOES RETIREMENT POLICY SIT SO SQUARELY FRONT AND CENTER. As we move through 2026, advisors, plan sponsors, and consultants are witnessing a rare moment where political upheaval, legislative momentum, and regulatory change are converging in ways that could shape the retirement system for a generation. Over the past year at the American Retirement Association, I’ve been in the room with lawmakers, regulators, and industry stakeholders on your behalf. What I’ve seen firsthand is both surprising and encouraging: even in a deeply divided Washington where the stakes for our industry have never been higher, retirement policy remains one of the few areas where real bipartisan progress is still possible.
A TURBULENT—BUT TELLING—YEAR IN 2025
To understand what lies ahead, we must first reflect on the extraordinary events of 2025. Unified Republican control of Congress and the White House created both momentum and tension. That tension culminated in the longest government shutdown in U.S. history with significant implications for the industry. During the shutdown, key agencies like the Internal Revenue Service (IRS) and the Department of Labor’s Employee Benefits Security Administration (EBSA) operated with severely reduced staffing, delaying guidance, audits, and regulatory activity. In many cases, retirement policy functions effectively ground to a halt. At the same time, Congress passed sweeping tax legislation known as the “One Big Beautiful Bill.” From a retirement policy perspective, the most notable outcome was what did not happen. Proposals that could have fundamentally altered the employer-sponsored retirement system—such as forcing retirement contributions into Roth accounts—were ultimately excluded. This outcome reflects the sustained advocacy of industry groups and policymakers who recognize the strength and effectiveness of the current employer-sponsored system. That success reinforces an important lesson: retirement policy remains a priority in Washington, but its future depends on continued engagement from the plan sponsor and advisor communities.
THE PUSH FOR PARITY: 403(B) PLANS AND COLLECTIVE INVESTMENT TRUSTS
One of the most significant legislative developments of the past year was House passage of the Retirement Fairness for Charities and Educational Institutions Act. This legislation would allow 403(b) plans to invest in collective investment trusts (CITs), bringing long-overdue parity between nonprofit and corporate retirement plans. For plan consultants and advisors, the implications are substantial. CITs often provide lower costs, greater flexibility, and enhanced customization compared with mutual funds. Allowing 403(b) plans access to these vehicles could significantly improve retirement outcomes for millions of teachers, healthcare workers, and nonprofit employees. The bill now awaits action in the Senate, where it will likely move as part of a broader capital markets package. There is strong reason for optimism, and your ARA Government Affairs team remains actively engaged with Senate offices to ensure this important legislation advances at the earliest opportunity.
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LITIGATION REFORM MOVES TO THE FOREFRONT
If there is one issue dominating conversations in the industry today, it is litigation risk. Over the past decade, retirement plans have faced an unprecedented wave of lawsuits alleging fiduciary breaches related to fees, investments, and plan governance. While accountability is essential, many of these lawsuits follow identical templates, creating significant costs even when claims lack merit. To address this trend, Congress has begun considering targeted reforms. One recently introduced bill, the ERISA Litigation Reform Act, would raise pleading standards and limit costly discovery until courts determine whether a case should proceed. These reforms are designed to discourage opportunistic litigation while preserving participants’ rights to bring legitimate claims. At the same time, the regulatory agencies are moving forward on their own. Under new leadership, the Department of Labor has become more active in filing amicus (“friend of the court”) briefs in ERISA
FOR PLAN SPONSORS CERTIFICATE
LEARN MORE
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48
WASHINGTON WATCH
SPRING 2026
cases, advocating for clearer legal standards and a more balanced interpretation of fiduciary duties. These developments could meaningfully alter the litigation environment resulting in greater innovation among plan offerings.
THE HOUSING DEBATE HIGHLIGHTS RETIREMENT POLICY’S BROADER ROLE
One of the more surprising policy debates this year involved the potential use of retirement savings to support homeownership. A senior advisor in the Trump administration briefly floated a proposal that would allow individuals to use retirement plan assets to purchase equity in their homes. The idea was ultimately abandoned (for now) when President Trump dismissed the idea during a media scrum aboard Air Force One: “I’m not a huge fan of it. Other people like it. They’re talking about taking money out to put a deposit down on a home. And one of the reasons I don’t like it is that their 401(k)s are doing so well. I like keeping their 401(k)s in great shape.” Even though the proposal itself is unlikely to move forward, the broader debate is instructive. Policymakers are increasingly focused on the interaction between retirement savings and other financial priorities, including housing, healthcare, and education. This trend will likely
shape future legislation, reinforcing the importance of preserving retirement savings while recognizing participants’ evolving financial needs.
THE REGULATORY LANDSCAPE IS DEVELOPING RAPIDLY
Legislation is only part of the story – regulatory agencies are also reshaping the retirement landscape. The Department of Labor has already updated its Voluntary Fiduciary Correction Program, expanded its opinion letter process, and issued new guidance addressing missing participants and unclaimed benefits. Perhaps most importantly, regulators are reevaluating prior guidance related to alternative investments. A proposed rule addressing fiduciary prudence standards could clarify how plan fiduciaries evaluate private equity and other alternative assets within defined contribution plans. This development could open new investment opportunities, while also reinforcing the importance of prudent fiduciary decision-making.
SECURE 3.0: THE NEXT MAJOR LEGISLATIVE FRONTIER
Even as the industry continues implementing SECURE 2.0, attention in Washington is already turning toward the next phase of retirement reform. SECURE 3.0 is unlikely to pass in 2026, particularly given the approaching midterm elections. But the groundwork is being laid now. Key areas of focus include expanding retirement plan access, improving incentives for both defined contribution and defined benefit plans, reducing administrative complexity, and addressing retirement plan leakage. These reforms build on the success of prior legislation and address emerging challenges in the retirement system. Importantly, retirement policy remains one of the few areas where bipartisan cooperation is possible. As political gridlock continues in other areas, retirement legislation may represent one of Congress’s most viable opportunities for meaningful policy achievement.
WHAT PLAN SPONSORS SHOULD EXPECT
Looking ahead, several themes will define retirement policy over the next 12 to 24 months: • Increased scrutiny—and potential reform—of ERISA litigation • Greater regulatory clarity around fiduciary standards and investment options • Ongoing discussions about the role of retirement savings in broader financial security • Early positioning for comprehensive retirement legislation in the form of SECURE 3.0 The retirement system’s strength is not accidental. It reflects decades of collaboration among policymakers, industry professionals, and plan sponsors. Continued engagement will ensure that the system evolves in ways that protect participants while supporting innovation and growth.
THE PATH FORWARD
Despite political uncertainty, the outlook for retirement policy is encouraging. Washington may remain volatile, but the momentum behind improving the retirement system is real. Policymakers across party lines recognize the critical role employer-sponsored retirement plans play in ensuring financial security for millions of Americans. Regulatory changes will require adaptation, legislative reforms will create new possibilities, and evolving participant needs will demand continued innovation. And, if the past year has taught us anything, it is this: retirement policy may not always move quickly, but when it does, it has the power to transform the financial futures of millions. Josh Oppenheimer is the American Retirement Association’s Senior Director of Federal Legislative Affairs.
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R E T S I G RE
Y A D O T RD A C P U E LIN Drew
A
1 B
A
6B
Peña
2B
Rivera
SS
A Marcos
CF
A Sutton
1B
cks A Hendri
LF
A
2B
3B
4B
5B
RF
dez A Hernan
C
A DeRosa
3B
A Wil son
P
7 B
8B
9B
2025 NQDC survey results are now available