PSCA's Insights Spring 2024

For Defined Contribution Plan Sponsors

RETIREMENT BEYOND THE PLAN

ALSO THE PATH TO A “SUCCESSFUL” RETIREMENT INCLUDES 4 PILLARS –HE ALTH, FAMILY, PURPOSE, AND FINANCES. AS AN INDUSTRY, C AN WE HELP WITH PARTICIPANT OUTCOMES BEYOND SAVING FOR RETIREMENT?

FIDUCIARY FRIENDS: HEALTH PLAN FIDUCIARIES NOW FACE RETIREMENT PLAN- LIKE LAWSUITS

REASSESSING FORFEITURE CLAUSES

PHASING INTO RETIREMENT

32

Retirement Beyond the Plan

As an industry, are we responsible for participant outcomes beyond successfully saving for retirement? If so, how? The gap between retirement expectation and reality is growing. Is there a role for plan sponsors in that gap?

by John Sullivan

FEATURE

38

Fiduciary Friends: Health Plan Fiduciaries

Now Face Retirement Plan-Like Lawsuits

Health plan fiduciaries are subject to the same duties as retirement plan fiduciaries to monitor plan costs and service providers.

by Emily Kile-Maxwell, Glenn Merten , & Kendra Roberson

UPCOMING DATES & EVENTS

PSCA’s 2024 National Conference

May 15–17, 2024

Salt Lake City, UT

www.pscanational.org

Webcasts

DC Investment Lineup Construction: Putting Principles into Practice

Thursday, April 18th, 2024 2:00 - 2:50 p.m

Check it out here.

INSTITUTIONAL SERVICES

Getting the best retirement plan for you and your employees takes the objectivity of a fiduciary and an open-minded look at the options. From selecting to managing and monitoring the plan, Regions Retirement Services is there. You’ll get a Relationship Consultant to help you choose the appropriate products and services and assist in providing the investment guidance you need. And you’ll have a 3(38) Investment Consultant dedicated to oversight and administration with regular reviews for optimal performance. Whatever plan you choose, count on a sense of assurance as part of your Regions Retirement Services experience.

Taking the guesswork out of retirement plan options.

Investment Fiduciary | Plan Design and Administration | ERISA Guidance

Financial Wellness and Plan Participant Education

To learn more about Regions Retirement Services o erings, visit regions.com/retirementservices.

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:

• 6 6 th Annual Survey of Profit Sharing and 401(k) Plans

• 2023 403(b) Plan Survey

• 2023 NQDC Plan Survey

• 2023 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.

Washington Representation

Your direct connection to Washington DC events and developments affecting DC plans.

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.

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.

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.

Editor, Director of Research & Communications

Hattie Greenan hgreenan@usaretirement.org

Art Director / Designer

Ethan Duran eduran@usaretirement.org

Advertising Sales

Thomas Connolly TConnolly@usaretirement.org

Digital Advertising Specialist

Tony DeScipio tdescipio@usaretirement.org

Production Assistant

Brandon Avent bavent@usaretirement.org

Cover Jorm Sangsorn / Shutterstock.com

PSCA STAFF

Executive Director

Will Hansen whansen@usaretirement.org

Senior Manager, PSCA Membership & Operations

LaToya Millet lmillet@usaretirement.org

PSCA Leadership Council

OFFICERS

President

Diane Garwood, Horizon Bank

Immediate Past President

Robin Hope, Megger

Directors

Joyce Anderson, GE; Ann Brisk, HSA Bank; Dena Brockhouse, Kent Corporation; Chris Dall, PNC; Brandon M. Diersch, Microsoft Corporation; Scott Greenman, The Principia; Teresa Hassara, Principal Financial Group; Mercedes Ikard, Disney; Tim Kohn, Whole Foods; Matthew Maier, Lockton Investment Advisors; Michelle McGovern, American College of Surgeons; Dan Milfred, Pacific Woodtech; Rose Murtaugh,

WELCOME NEW MEMBERS!

CORPORATE MEMBERS

Deseret Mutual

Benefit Administrators

Salt Lake City, UT

Industry: Insurance

Contact: Kyle Webb

Fiduciary Decisions

Tualatin, OR

Industry: Fintech

Contact: Kathleen Connelly

Leading Retirement Solutions

Seattle, WA

Industry: Retirement Plans

Contact: Kirsten Curry

Publix Employees Federal Credit Union

Lakeland, FL

Industry: Credit Union

Contact: Michelle French

WCM Industries, Inc.

Colorado Springs, CO

Industry: Manufacturing

Contact: Jason Homec

CERTIFIED PLAN SPONSOR PROFESSIONALS

Tonya Adams

Premier Truck Group

Justin Adams

Humana

Kazi Ahammad

NYC Board of Education Retirement System

Richard Andersen Aries Industries

Matthew Anderson

Glave & Holmes Architecture, P.C.

Casey Anderson

Nature Energy

Edward Angel Fluor

Joseph Arnold

Delta Dental of WI, Inc.

Terry Aulger Air Design Systems, Inc.

Amanda Barden

Thomas Jefferson Foundation, Inc.

Kayla Barnett Corporate America Credit Union

Carline Barrau

Seminole Tribe of Florida

Megan Beal

Glanbia Business Services

Cynthia Benitez Novavax, Inc.

Jason Bishop Bank of Botetourt

Andrea Bohn

Lafayette College

Hannah Brandes

Empower Energies Clean Infrastructure, LLC

Susie Brasher

Robins & Morton

Amanda Brooks

Lodge Manufacturing

William Burgess Power Technology, Inc.

Maddison Burton University Corporation at Monterey Bay

Amanda Cady Atmosera

Jeffrey Carriker

Rocco Building Supplies, LLC

April Carter Greensboro Science Center

Vincent Cavallo Guardian

Abigayle Chapman

SantaFe HealthCare

Kelly Chen Yale University

Maya Chiles

PBS

Mandy Choi

Cathay Pacific Airways

Hannah Cockrum Pacific Woodtech

Lindsy Coe

Capitol Aluminum & Glass Corporation

Christy Connor Home Paramount Pest Control

Jamy Conrad TrustRadius

Heather Conrad Big Rock Sports

William Conway First Business Bank

Jean Cowen ThunderCat Technology, LLC

Nicholas Cunningham Police Foundation

Kate Dalgliesh Terrapin Systems, LLC

Kathryn Davidson Clinical Ink, Inc.

Dana Dawkins

Wayne-Sanderson Farms

Emily Debeniotis

Burke & Herbert Bank

Stacey Delaney

Sonoma Biotherapeutics, Inc.

Jacey Deleu Thorlabs, Inc.

Maria DiBenedetto

Liberty Bay Credit Union

Rachel Dodson

Corporate America Credit Union

Sharon Downey Acro Service Corp

Cory Drisco

Yale University

Joyce Dunn

Wayne-Sanderson Farms

Beatrix Eiben

Yale University

Sheila Eller New Vista of the Bluegrass, Inc.

Jennifer Emery City of Sandy Springs

Iyekeze Ezefili NYC Board of Education Retirement

Suzie Fortner Archdiocese of Seattle

Kelly Frazier

Christian Financial Credit Union

Timothy Freeman Institute for Defense Analyses

Christy Freeman Wayne-Sanderson Farms

Shayna French AMC

Tabatha Gaines Momentus Capital/ CDC Small Business Finance

Kitty Garcia Federal Home Loan Banks Office of Finance

Monique Gentz Pursue Health, LLC

Kristi Gerdon Cazenovia Equipment Co., Inc

Karen Giannone Premier Dental Products Company

Jennifer Gibson Home Creations

Laura Glick Spencer Foundation

Jennifer Gotta Agillence, Inc.

Leilani Grant Romanoff Renovations

Gretchen Grebasch Solerity, Inc.

Keyesa Green The Alinea Group

Deborah Grenier Dynaxys, LLC

Charu Gulati Grammer Americas

Christine Hagen Agropur, Inc.

Steven Haller

Johns Hopkins University Applied Physics Laboratory

Carrie Harmon International Food Products Corporation

Lauren Henderson Jama Software Inc.

Audrey Hines-Sharif SAWTST

Jill Hosack Barber National Institute

Lynne Hostetter Piper America’s Health Insurance Plans (AHIP)

Diana Imme K2 Insurance Services, LLC

Danielle Jimenez ActiveCampaign, LLC

Diane Jimenez Medline Industries, LP

Christie Johnson Enova International, Inc.

Carolyn Johnston Pursue Health, LLC

Cassidy Jones nCino OpCo, Inc.

David Joniec Center for Primary Care

Nicola Kennedy American College of Cardiology

Danielle Kent Sentara Health

Kimberly Key Golden SVCS, LLC

Gaye Knight Wright, Lindsey & Jennings, LLP

Sandy Knight Center for Creative Leadership

Hannah Korcal

Reliance Matrix

Julia Kruckow

Vance Brothers, Inc.

Fallon Lane

HemoSonics, LLC

Conrad Lau

Cathay Pacific Airways Limited

Selina Lee

Synergy Fiber

Kristy Linsenbigler

ThedaCare, Inc.

Christine Lobo HR Options, Inc.

Suzanne Locy

Leaf Home

Rosemarie Luczak

Paradyme Management, Inc.

Tonya Martinez

Pursue Health, LLC

Matthew Matula ImageFIRST

Christian Matz

Coca-Cola Southwest Beverages, LLC

Arianna Maus

AaCron, Inc.

Suzanne McConkey

Glatfelter Insurance Group

Margaret McCreadie

Huntsville Rehabilitation Foundation, Inc. dba Phoenix

Nissa McMillan

K2 Insurance Services, LLC

Mark Meadors New Day Healthcare

Kristine Miller Wenderoth, Lind & Ponack, LLP

Stephanie Mitchell

Penn State Health

Carla Moscatelli

Gap International, Inc.

ShaNez Mulliner

Virta Health

Moshe Muratov B&H

Mia Murphy

Umpqua Indian Development Corporation

Abby Nader

Marathon Petroleum

Sarah Newton

Augusta Coating and Manufacturing

Mimi Nguyen Whole Foods Market

Dagmar Nikles FM Global

Helene Obrien Krayden, Inc.

Katy O’Dell Southwest Power Pool

Cheryl Ogles

Abilities First, Inc.

Christy Page

IABBB

Aungela Parker

Capital Impact Partners

Alicia Pasillas Nicholas Seminole Tribe of Florida

Heather Pedersen Endeavor Air

Rachel Perez Gertens Greenhouses & Garden Center, Inc.

Sandra Peters Herbert, Rowland & Grubic, Inc.

Rosemary Phillips GMH Associates

Kay Pinckard Plumbers Lumbers & Steamfitters Local Union 52

Sharon Pineo

Sebela Pharmaceuticals

Cynthia Plummer

Ohio Machinery Co.

Aneta Pogoda Axion RMS, Ltd.

Mary Pohland

Federated Insurance

Patricia Preston Froehling & Robertson, Inc.

Carolyn Reyes

Verisign

Sarah Reynolds Interface, Inc.

Natalie Rice-Harris Team IMPACT

Jana Richey

Harold O’Shea Builders, Inc.

Kimberly Robidoux RENK America

Rachael Rosky

PVH Corp.

Leslie Russell

City of Alpharetta

Cynthia Saiki

Hawaiian Airlines

Stacie Sayre

Cretex Companies, Inc.

Bob Scheppegrell

Greensboro Science Center

Laura Schilare

CentraState Healthcare System

Sarah Seifert W&A Distribution Services, Inc.

Carol Sicard City of Smyrna

Nancy Singer College Church in Wheaton

Shannon Smith

Lindt & Sprungli (USA), Inc.

Kerry Smith

NCTA-The Internet and Television Association

Stacey Smith

The Orthopaedic Center

Elise Smith AVIAN

Justin Smith

Utah Community Credit Union

Nikita Smith 23XI Racing

Brea Spann Ardent Mills

Micole Sparacio

Cumberland Mutual

Anna Spin

The Country Club of Rochester

Nicole Spisak Leaf Home

Kimberly Starkey Thrall Enterprises, Inc.

Gina Stepoulos Terrapin Systems, LLC

Heather Stewart

Frederick Health

Gretel Celeste Strenk SDI, Inc.

Chithra Subramaniam NYC BERS

Miranda Sullivan Swoon Group, LLC

Colleen Suppa Northwest Community Bank

Alanna Tanner

Amick Farms, LLC

Sheri Thompson

Enova International, Inc.

Nicole Tillman

Winmark Corporation

Teresa Tribble

Bristol Myers Squibb

Kelli Truitt

Harold Beck & Sons, Inc.

Brittany Truszkowski

Gale, Angelo, Johnson & Patrick, P.C.

Janet Underwood

Desert Diamond Casinos (Tohono O’odham Nation)

Gricelda Vallejo

Seminole Tribe of Florida

Steven Van Duyne Fabian & Byrn, LLC

Monique Vanden Heuvel TranSource Truck & Equipment

Karen Vanleer

Harold Beck & Sons, Inc.

Elizabeth Vargas HICAPS, Inc.

Kristina Veney

Crutchfield Corporation

Melissa Wacht Creative Testing Solutions

Emma Walker

GA Telesis, LLC

Darren Walker doTERRA International

Tyler Wall

Kelly Services, Inc.

Briana Walsh ImageFIRST

Alex Wanless California Dairies, Inc.

Audrey Ward

Venesco, LLC

Janet Webb

Acadian Seaplants Limited

Amy Weisz

St. Cloud Financial Credit Union

Brandi Wilson 2U, Inc.

Garrick Wisner

Agropur, Inc.

Zachary Yamamoto

MilliporeSigma

Adam Zirulnik

Grifols

by Hattie Greenan

‘Rolling’ Into Retirement

Multiple factors lead to employees successfully transitioning into retirement, and those factors go beyond financial security – what is the role of the plan sponsor in assisting with these other factors?

THE ROLE OF THE EMPLOYER IN BENEFITS IS SOMETHING THAT HAS BEEN DISCUSSED IN THE INDUSTRY FOR A LONG TIME – THE PERSPECTIVE OF WHICH IS OFTEN HIGHLY VARIABLE ACROSS COMPANIES AND HAS EBBED AND FLOWED OVER TIME. SOME COMPANIES TAKE A more paternalistic approach to workplace benefits, some take a more hands-off approach. Some provide a lot of education and wrap the retirement plan into a holistic financial wellness program, and others design their plans to be highly competitive with a goal of attracting top talent and less of an eye towards decumulation and retirement preparedness. There isn’t a right or wrong, corporate philosophies regarding benefit offerings are as variable as their industries and are (or should be) tailored to the needs of employees. But … with the constant talk of a “retirement crisis” that may or may not exist depending on which article you read on which day with which set of numbers, should companies be doing more to help employees transition to retirement? In our cover story, John Sullivan discusses the four pillars of retirement – health, family, purpose, and finances. And though family and purpose are not necessarily something that companies would focus on, or know about, the four pillars are interconnected with family and purpose directly impacting health and finances in retirement.

THERE ISN’T A RIGHT OR WRONG, CORPORATE PHILOSOPHIES REGARDING BENEFIT OFFERINGS ARE AS VARIABLE AS THEIR INDUSTRIES AND ARE (OR SHOULD BE) TAILORED TO THE NEEDS OF EMPLOYEES.

The transition to retirement is often a big psychological adjustment. Older adults often struggle with adjusting to their new normal, and to finding a purpose, especially if their purpose was previously highly related to their profession. If work was a primary place for social interaction, retirees may feel isolated and alone. There can be higher levels of anxiety and depression, which can lead to, or compound, other health problems. Anxiety and depression often result from a disparity between reality and expectations. We paint a picture of retirement with carefree adults sitting on a beach or travelling the world or visiting grandkids. And the reality is, that is not the reality for all (most?) retirees. Many are facing the reality of financial struggles, many are taking care of adult children (possibly also elderly parents), some may want to keep working but can’t because of health reasons or lack of opportunities.

One way that companies can help ease the psychological transition to retirement is through offering a “phased retirement” program that allows employees at retirement age to slowly transition out of the workplace. As Doug Prince points out in an article this issue – a phased retirement program can also benefit the company in many ways.

Whether a company should care about, or do anything about, factors that will ultimately impact not just longevity of life, but quality of life is a question that … almost seems a bit silly. Corporations don’t *care* about people, right? But, at the same time, at the helm of companies are people – people

who will ultimately face these same inflection points and as the Plan Sponsor Perspectives article in this issue demonstrates, there are a LOT of caring, dedicated HR folks out there who do want to assist with this. Many would like to do more to help employees transition into retirement and not just in a timely way, but in a healthy –physically and mentally – way (and frustration in doing so when hampered by the C-suit and struggling to prove why these things (should) matter at a corporate level). So, want CAN plan sponsors do to help? Several articles in this issue have a few suggestions. I do think this is something we will continue to see evolve, and perhaps some best practices emerge, especially as the industry focus shifts to retirement income and it grapples with how to best provide financial security for participants in retirement –and as a recognition begins to solidify that financial security in retirement is intrinsically tied to these other factors.

by Diane Garwood

Certifying Your Expertise

Join other top plan sponsors in obtaining the Certified Plan Sponsor Credential and join us in Salt Lake City for a multitude of learning and networking opportunities.

GREETINGS, PSCA MEMBERS! IT’S BEEN AN EXCITING ADVENTURE BEING YOUR 2024 PSCA PRESIDENT AND I LOOK FORWARD TO A YEAR FULL OF MOMENTS PROVIDING MORE LEARNING OPPORTUNITIES AND RESOURCES TO PROVIDE MORE INFORMATION TO YOUR PLAN PARTICIPANTS AND PLAN COMMITTEES.

We are only a few weeks away from our National Conference in Salt Lake City and it is shaping up to “backpacked” full of information and fun, as we strive to “Reach New Heights.” As of this writing, more than 250 CPSPs have registered to attend, along with many service provider partners. Our big goal this year is to exceed 500 individuals at the 2024 National Conference. If you haven’t yet registered, there’s still time! Individuals with the CPSP certification receive free registration for this wonderful conference. With four general sessions led by experts, and 20 breakout topics including plan design, investments, HSAs, compliance issues, and plan sponsor roundtables – just to name a few – there are lots of ways to enhance your knowledge in the field of retirement benefits.

NETWORKING

WITH FOUR GENERAL SESSIONS LED BY EXPERTS, AND 20 BREAKOUT TOPICS INCLUDING PLAN DESIGN, INVESTMENTS, HSAS, COMPLIANCE ISSUES, AND PLAN SPONSOR ROUNDTABLES – JUST TO NAME A FEW – THERE ARE LOTS OF WAYS TO ENHANCE YOUR KNOWLEDGE IN THE FIELD OF RETIREMENT BENEFITS.

CERTIFIED PLAN SPONSOR CREDENTIAL

Speaking of CPSPs, there are currently about 1,800 plan sponsors who now hold the CPSP designation. This is an exciting number! I was fortunate enough to take the first test offered in 2019. I think there were about 30 of us in that session in Tampa. What a testament to the value of the certificate to have such a large number study for and pass the exam in those few years since. For those fellow CPSPs, congratulations! We have a great community of people and resources at our fingertips. The continuing education credits are offered through many sources, and the webinars are all free. And since these are HR related learning opportunities, if you are also certified through SHRM or HRCI, the webinars can be used for CEs there also. If you are a plan sponsor, and haven’t earned your CPSP, I encourage you to look into the program, get yourself scheduled to take the course and sit for the exam! The national conference is a great place to do so! Visit www.psca.org/cpsp for more information about the credential.

Other benefits of attending the conference include the multiple opportunities for professional development through networking opportunities. The exhibition hall grants you access to many service providers –whether you are looking for a new partner, getting the opportunity to talk with your current partner, or looking to learn more about a service you haven’t had exposure to before, make sure to spend some time in the hall. And don’t forget the party on Thursday night – it’s a great way to socialize with your fellow attendees and make new connections!

I recently had the opportunity to meet with PSCA’s Executive Director Will Hansen and one of my service providers who is not a member of PSCA. It was great to hear Will share all the good things PSCA does for plan sponsors and the retirement community at large. I look forward to seeing you all in Salt Lake City in May!

Diane Garwood is the Vice President of Human Resources for Horizon Bank.

5th Annual HSA

Survey is Now Available

The only source of HSA benchmarking data

by Will Hanson

See You in Salt Lake!

More than 300 plan sponsors are scheduled to congregate in Salt Lake City in May to network and learn from the industry’s top experts.

IT HAS BEEN A WHIRLWIND 2024 SO FAR, BUT I’M EXCITED FOR THE FACT THAT WE ARE GETTING CLOSER TO THE 2024 PSCA NATIONAL CONFERENCE. I HOPE TO EXTEND A WARM (ISH) WELCOME TO MANY OF YOU WHO ARE ATTENDING THIS MAY (HOPEFULLY, THE WEATHER/ temperature will be perfect). This year’s conference promises to be an exceptional gathering of HR leaders, retirement plan experts, and other professionals, and I am thrilled to invite you to join us in beautiful Salt Lake City for what is sure to be an enlightening and inspiring event.

The PSCA National Conference serves as a premier platform for fostering collaboration, sharing insights, and exploring innovative solutions in the realm of retirement and employee benefits. This year’s conference theme, “Navigating the Future of Retirement and Benefits,” underscores the importance of adaptability and forward-thinking in an ever-evolving landscape.

As we convene in Salt Lake City, we will have the opportunity to dive into a diverse array of topics and discussions that are shaping the future of retirement and benefits. From regulatory updates and compliance strategies to the latest trends in plan design and participant engagement, the conference agenda is designed to provide valuable insights and actionable takeaways for attendees.

its rich history and cultural attractions.

As we look ahead to the PSCA 2024 National Conference, I am filled with excitement and anticipation for the valuable conversations, insights, and connections that await us. I encourage all attendees to come prepared to engage, learn, and be inspired as we navigate the future of retirement benefits together.

THE PSCA NATIONAL CONFERENCE SERVES AS A PREMIER PLATFORM FOR FOSTERING COLLABORATION, SHARING INSIGHTS, AND EXPLORING INNOVATIVE SOLUTIONS IN THE REALM OF RETIREMENT AND EMPLOYEE BENEFITS.

One of the highlights of this year’s conference is the lineup of esteemed speakers and thought leaders who will be sharing their expertise and perspectives on key issues facing plan sponsors. Whether you are a plan sponsor, retirement plan advisor, consultant, or service provider, you will find ample opportunities to engage with peers, gain new perspectives, and expand your knowledge base.

The general sessions will be packed with information. I’ll kick it off with a Washington Update and we will close on Friday with a session on Artificial Intelligence (AI) and how it is impacting the HR field and retirement plan administration.

In addition to the insightful educational sessions, the PSCA National Conference offers numerous networking opportunities for attendees to connect with colleagues, exchange ideas, and build valuable relationships. Whether it’s during breakout sessions, networking receptions, or informal gatherings, the conference provides a collaborative environment where ideas flourish and connections are made.

Salt Lake City, with its stunning natural beauty, vibrant cultural scene, and renowned hospitality, serves as the perfect backdrop for our conference. Attendees will have the chance to explore all that this dynamic city has to offer, from outdoor adventures in the nearby mountains to exploring

On behalf of the PSCA team, I extend my sincere gratitude to each and every attendee for their participation and support. Together, we will continue to advance the mission of PSCA and drive positive change in the retirement and benefits landscape. See you soon!

Will Hansen is the Executive Director for Plan Sponsor Council of America.

by Matt Maier for PSCA’s NQDC Committee

Deferred Baseball Dreams

IT’S RELATIVELY RARE THAT MY PASSION FOR BASEBALL AND MY “DAY JOB” EVER CROSS PATHS. SADLY, MY CHILDHOOD DREAM OF PLAYING THIRD BASE FOR THE CHICAGO CUBS ENDED MANY YEARS AGO. FOR THE PAST 20 PLUS YEARS, I’VE ADVISED COMPANIES ON THE DESIGN AND OPERATION OF THEIR DEFERRED COMPENSATION PROGRAMS. FOR THE MOST PART, THESE ARE

two extremely different worlds. However, this past December these worlds did in fact meet when the Los Angeles Dodgers signed Shohei Ohtani to a 10-year, $700 million contract.

structured his contract to pay him $2 million per year during his playing years with the remaining $680 million payable to him over the subsequent 10 years.

By structuring his contract in this manner, the Dodgers can keep their annual payroll down (subjectively) and Mr. Ohtani is able to lower his annual taxable income.

Deferred compensation: a smart strategy for professional athletes—and the executives who wish they were… and retain some of their key talent. This strategy is also not new to baseball. In 2000, the NY Mets cut ties with the aging superstar Bobby Bonilla and utilized a deferred compensation program to spread out the remaining amount owed to him under his contract. Each July 1st, Mr. Bonilla receives $1.2 million from the Mets, payable until 2035. July 1st has affectionately become known as “Bobby Bonilla Day.”

As a global superstar, Mr. Ohtani earns millions of dollars in endorsement agreements in addition to his lucrative contract with the Dodgers. Astutely, the Dodgers and Mr. Ohtani’s agent leveraged his fortunate position and

Also, by having his deferred compensation payable over at least ten years, Mr.

Ohtani could choose to utilize a special tax treatment commonly referred to as source tax tracking. This is a tax treatment that, assuming he meets specific eligibility, Mr. Ohtani could use and avoid paying California state tax if he were to subsequently leave the state when his contract is over. This strategy isn’t a new novel idea. Companies have been using deferred compensation plans for decades to help recruit

Deferred compensation programs are contractual arrangements where a portion of an athlete or executive’s compensation is paid out at a later date, typically after retirement. For athletes like Mr. Ohtani, who earn substantial incomes during their playing years, deferring a portion of their compensation can offer several advantages.

First, deferred compensation allows (very) highly compensated individuals such as athletes to mitigate their tax liabilities. By deferring income to a later date, athletes can potentially reduce their taxable income during their high-earning years. This can be particularly advantageous for athletes who may be subject to high tax

rates due to their significant earnings.

Second, deferred compensation provides athletes with a financial safety net for the future. Professional sports careers are notoriously unpredictable, with injuries and fluctuations in performance posing risks to athletes’ earning potential. By deferring a portion of their earnings, athletes like Mr. Bonilla can ensure a steady stream of income during retirement, helping to maintain their lifestyle and support their families long after they hang up their cleats.

Moreover, deferred compensation can serve as a valuable tool for wealth accumulation and growth.

Participants in these plans

commonly can invest their deferrals in a variety of vehicles, such as mutual funds or company stocks. By harnessing the power of compounding returns over time, deferred compensation can significantly increase an individual’s wealth and financial security.

However, it’s essential to approach deferred compensation with careful consideration and planning. There are inherent risks to deferring compensation. Working with experienced financial advisors and tax professionals can help navigate the complexities of deferred compensation and maximize its benefits.

Deferred compensation programs represent a

valuable financial strategy for professional athletes and executives alike. By deferring a portion of their earnings, these highly paid individuals can enjoy tax advantages, build a financial safety net, and create opportunities for wealth accumulation and growth. However, careful planning and diligence are essential to maximizing the benefits of deferred compensation and securing long-term financial security beyond the playing field or the board room. Play ball!

Matt Maier is a Vice President for Lockton Companies, LLC and chair of PSCA’s NQDC Committee.

by Hattie Greenan

NQDC Plans Can Enhance Employee Engagement

PSCA’s 2023 Nonqualified Plan Survey shows trends in plan design and administration.

NONQUALIFIED DEFERRED COMPENSATION (NQDC) PLANS ARE OFTEN OFFERED BY EMPLOYERS ALONGSIDE THE QUALIFIED PLAN TO RECRUIT AND RETAIN TOP TALENT.

These plans have a lot of flexibility in design that allows employers to customize them to the unique needs of their employees. This flexibility allows employers to create a benefits package that is competitive to industry peers to recruit for executive and leadership positions.

PSCA’s recently released 2023 NQDC Plan Survey, sponsored by Lincoln Financial and Principal Financial Group®, shows that though these plans are still most often seen as a recruitment tool, more employers are focused on education and including the NQDC plan as part of a holistic financial wellness program, increasing the use of these plans as a retainment tool as well. Nearly threequarters of organizations provide NQDC-specific plan education to eligible employees, up from half of plans just four years ago while a third of organizations include that education as part of their financial wellness program, up from 19 percent in 2022.

Asked the top three reasons why they offer NQDC benefits, plan sponsors most commonly cited “have a competitive benefits package,” “help employees accumulate assets,” and “retain eligible employees.” Though these three reasons are generally in the top three – “help eligible employees accumulate assets” jumped from 43.5 percent in 2022 to 61.2 percent in 2023, perhaps indicating a shift in how these plans are positioned with employees and correlating with the increased plan education.

Reasons in the Top Three for Offering a Non-Qualified Plan to Employees

› Have a Competitive Benefits Package › › › 80.6%

› Help Eligible Employees Accumulate Assets › › › 61.2%

› Retain Eligible Employees › › › 56.3%

DEFERRED DESIGNS

Though NQDC plan designs may vary significantly in terms of objectives, eligibility, and provisions, they tend not to change much year-over-year. Historically, about a third of companies offer a nonqualified plan to key employees in addition to the qualified plan offering, though this is size correlated with three-fourths of large companies offering a NQDC plan and very few small companies doing so.

Eligibility

Eligibility to participate in these plans is generally limited to a small subset (usually 10 percent or less) of highly compensated employees and based on a plan-defined criteria (most commonly job title or position).

› Allow HCEs to Defer the Same Proportion of their Income as Other Employees

Contributions

43.7%

› Offer a Tax –Planning Device to Eligible Employees

› Help Eligible Employees Raise their Income Replacement Ratio ›

› 17.5%

› Have an Above Average Benefits Package

13.6%

› 18.4%

Twenty percent of plans only allow employee contributions to the NQDC plan, whereas nearly 70 percent provide for both employee and employer contributions. Many NQDC plans are designed to offer a comparable level of value where the tax code limits taxqualified plans – the most common contribution formula (and most

NEARLY THREE-QUARTERS OF ORGANIZATIONS PROVIDE NQDC-SPECIFIC PLAN EDUCATION TO ELIGIBLE EMPLOYEES, UP FROM HALF OF PLANS JUST FOUR YEARS AGO WHILE A THIRD OF ORGANIZATIONS INCLUDE THAT EDUCATION AS PART OF THEIR FINANCIAL WELLNESS PROGRAM, UP FROM 19 PERCENT IN 2022.

plans make contributions) is a “restoration match” which allows for an equal matching contribution as in the qualified above the IRS imposed limits.

Plan Funding

Sixty percent of respondent plans set money aside to meet future obligations. Of those that do, 80 percent set it aside in a Rabbi Trust. Respondent plans indicated that, on average, approximately 95 percent of future benefit obligations have been set aside. More than half of plans have the same investment options in their NQDC plan as their qualified DC plan. Fewer than 20 percent of plans that offer company stock allow it as an option in the NQDC plan.

Distributions

Sixty percent of plans allow in-service distributions and two-thirds allow unforeseeable emergency distributions.

Immediate vesting for employer contributions is available at more than a third of companies, though it is used at nearly 70 percent of large organizations (5,000 or more employees).

A third of plans have a bad actor forfeiture clause, and a quarter have a non-compete provision that forfeits the NQDC benefit if the employee leaves to work for a competitor.

PSCA’s 2023 NQDC Plan Survey was conducted in October 2023 and reflects the responses from 159 organizations that offer a NQDC plan to employees. The full survey is available for purchase on PSCA’s website

Hattie Greenan is the Director of Research and Communications for PSCA.

2023 NQDC survey results are now available

by Ann Brisk, Sara Caddy, & Cynthia Obenland for PSCA’s HSA Committee

Everything You Need to Know Before Selecting an HSA Provider

PSCA’s HSA committee provides an overview of things to consider and questions to ask when issuing an RFP for an HSA provider.

THERE

IS AN ADAGE THAT CHANGE IS GOOD, BUT TRANSITION IS HARD. NEVER IS THIS TRUER THAN WHEN AN EMPLOYER HAS AN EXISTING BENEFIT THAT EMPLOYEES APPRECIATE BUT A CHANGE IS NEEDED TO WHO MANAGES IT. WHILE SOME VENDOR CHANGES SUCH AS THE HEALTH INSURANCE

carrier or new 401(k) custodian can take an inordinate amount of time to finalize, a Health Savings Account (HSA) administrator change can be less lengthy and painful. This article is designed to help navigate the process for changing a current HSA provider or selecting one for the first time.

Employees are becoming increasingly savvy in their understanding of how HSAs work. And that’s thanks to the education their employers are doing regarding the benefits to having an HSA: the triple tax advantage of pre-tax payroll contributions; tax-free investment growth on account balances; and tax-free spending on qualified healthcare expenses. The allure of building up account balances now to spend on future healthcare needs – including Medicare premiums – is a good selling point. Some employers are also contributing to their employees’ HSAs either through a matching contribution or a flat contribution.

Employees are also starting to view the importance of the HSA in their retirement planning strategy whether for spending on healthcare or potentially as another income stream once turning 65 (but subject to taxes when used as income). The HSA is quickly becoming a highly valued addition to an employer’s total rewards package when looking at an integrated retirement strategy –partnering it along with a 401(k), 403(b), or pension plan. With all of this focused attention on the HSA benefit, finding the right HSA administrator is more important than ever.

THE RFP

The process to switch HSA providers includes a Request for Proposal (RFP) to not only send to other administrators, but also to your current administrator. Your current administrator may surprise you with additional cost savings or product offerings when they know that you are considering changing providers. The RFP process can seem daunting but partnering with your benefit brokers or consultants is wise. But before that, it is important to understand your employee population and think about those areas that are important to you and your employees regarding the HSA provider:

• Investment/savings opportunities

• Fees

• Administrator/participant online platforms

• Management of other benefits such as FSA plans

• Ease of account closing

Key demographic and behavioral factors need to first be identified and analyzed. Factors to consider:

• What percentage of your population is enrolled in your qualified high deductible plan?

• What percentage of this population is participating in the HSA benefit? If more individuals are enrolled in the medical plan but not participating in the HSA benefit, why is that?

• Do employees really understand how the HDHP works with the deductible or network access and total cost?

• Do employees understand how their HSA works?

• Are these same employees actively participating in the retirement plan you offer?

• Are retirement plan participants showing a strong interest in investing within the retirement plan, or are participants defaulting their investment allocation to a default fund?

Evaluating your retirement plan may tell you how successful your HSA plan can be and how it should be structured. This can impact the HSA administrator choice. For example, if you have a 401(k) plan and a large percentage of this employee population is also contributing enough to receive the full employer match, or even beyond what is required to receive the full match, this may indicate that your HSA population is focused on long-term saving and is interested in diversifying their retirement plan options. Alternatively, your population may minimally contribute to the retirement plan, and therefore their behavior may be similar with not contributing to their HSA. Identifying participant behavior can help narrow down your HSA provider options. It can also help with strategically deciding how to support your employees from a retirement planning focus.

Savings and investing are two big factors when deciding which HSA provider to use. Not all providers approach this benefit for HSA plans the same way. Factors to consider:

• Does the provider offer any investing options for accounts?

If so, when can that start? Only after a minimum balance in a

participant’s account is reached, such as $1,000? Or initially from the start on any account balance?

• Ideally the investment platform will allow participants to automatically sweep and invest their new HSA cash for a “set it and forget it” approach.

• If your employee population is more focused on growing their HSA balance, consider a provider who allows investing with the first dollar or negotiate for this option. But it can be beneficial for participants to keep some cash in their account in case they want to use the debit card.

• Does the provider only offer an investment lineup that uses their standard list of funds? Or does the provider allow the option to take control of the investment offerings?

• If the provider allows you to establish the lineup, should it mirror your current 401(k) investment options? Or should it be different?

• Does the provider offer a self-directed brokerage account to buy individual stocks?

• This gives the participants even greater control of their HSA investments. But with more options can come more confusion, so what participant education resources the provider has is also important.

Fees are another area to be fully understood. Factors to consider:

• Are there any administrative fees assessed by the provider?

• If so, will you, the plan sponsor, be absorbing this expense or will it be the employee?

• Is the administrative fee based on plan size (in assets or participants)? Can this be negotiated down or even eliminated? Some employees may have prior HSA accounts from previous employers and may pay multiple administrative fees.

• Does the provider allow for HSA rollovers and are there any rollover fees? How smoothly does the rollover process work? Reminding employees that they can consolidate the number of HSAs they have is a good outreach to your participants. Keep in mind that funds may go into your plan and then immediately back out when there is a rollover. And some providers charge fees to close accounts as well.

• Are participants charged an investment fee? What determines this? Is it a flat fee? Or based on the individual’s account balance size?

TECHNOLOGY TEST

Administrator and participant online platforms are also a consideration as the user experience can be very important for a successful change. Fortunately, most HSA providers now make this part relatively easy for participants to create a login and password and then direct where contributions will go. However, making sure that you see a demo of the online participant experience is critical. The demonstration should include how a participant can be reimbursed for an eligible expense online as well as their debit card. Seeing a demo of the mobile app experience is also important and the same functionality that can be done online should be accessible in the mobile app experience as well.

Identity verification may be one of the most frustrating aspects of managing an HSA plan – for you and participants. Per the US Patriot Act, all banks must validate the identity of each account holder. But each provider may have different processes to accomplish this. Some providers may require the participant to upload ID to open the account and other providers may use the Customer Identification Program (CIP) by utilizing a national database to confirm identification. Since HSA accounts are not considered active until funded, the sooner the account is opened and ID confirmed the better, so the depositing of funds will not be delayed.

Evaluate what would be the easiest and best option for your organization and employees. Be sure to have the potential provider walk through all steps involved. Some providers will penny fund the account once it is opened so it is considered “funded” on day one. If

ADMINISTRATOR AND PARTICIPANT ONLINE PLATFORMS ARE ALSO A CONSIDERATION AS THE USER EXPERIENCE CAN BE VERY IMPORTANT FOR A SUCCESSFUL CHANGE.

this is an option, you also will want to ask what fees are associated with that functionality.

As the plan sponsor, administrative access will be of greater concern and not all platforms are created equal. Just like with the participant platform walkthroughs, it is very important to see a demonstration of the administrator platforms: Factors to consider:

• What are the reporting capabilities? And what data would be important to your organization for reporting purposes? Can the provider deliver that? Note, because HSAs are employee owned, there is only so much data that can be shared and reported on by providers.

• What options exist for depositing employee payroll contributions and employer contributions into the accounts? Direct deposit from a payroll system? Manually uploading a file?

• What steps are required to send late contributions if outside the regular cadence?

• Is a dedicated account manager assigned? Or do administrators call a general help line for assistance?

• What educational resources does the provider make available to participants, as well as any provider-led webinars?

OTHER CONSIDERATIONS

In addition, consider the number of benefit plans your HSA provider will be managing for you. Some HSA providers can also manage Flexible Spending Account benefit plans. Will this provider also be managing these for you if you offer these benefits to your employees? And will that result in a good employee experience or not?

Given that HSA communication and education often involves explaining the difference between HSAs and FSAs, it’s not unreasonable to want to have two different providers for these two plans. However, if your population has a generally good understanding of the differences, having one provider for both may result in lower administrative and account fees, plus reduce the burden of employees having to remember which benefits belongs with which provider.

Debits cards are also typically associated with the Healthcare FSA and Limited Purpose Healthcare FSA benefits (just like the HSA) so someone enrolled in both the HSA and the Limited Purpose Healthcare FSA may have two separate debit cards if these two benefits plans are managed by separate vendors. Contemplate if having one card for two accounts will help or hurt the experience.

TRANSITIONING PROVIDERS

Finally, after deciding which HSA provider to partner with, your organization may be in a position of needing to end the relationship with your current HSA provider. Be sure to review the current provider agreement to determine the notice period required for ending the relationship. Other factors to consider:

• Will you be assisting participants in closing their current HSA accounts and performing a bulk transfer to the new provider? Or will your organization leave the transferring of balances and closing of accounts to your participants?

• If the current provider charges an account closure fee, will this be absorbed by your organization or the participant?

• Note, some providers might even offer an incentive to encourage participants to transfer their existing balances into the new account.

• Consent in the form of an opt-in or opt-out will need to be provided by participants during this process, if performed.

• Some employees may also choose to spend down their HSA balance rather than incur a closure fee. But doing this is a short-term decision that may undercut a long-term savings strategy so participants should be counseled accordingly on all of their options.

• If the provider you are leaving offered an investment option, will these investments need to be liquidated before the transfer occurs?

• What about the timing of an account balance transfer? While tempting to perform a transfer immediately after the introduction of the new provider, consider whether waiting for initial contributions to be made into the new accounts first so participants have funds to access while their prior balances from the prior provider are being transferred.

Choosing the correct HSA provider for your organization may seem like a huge undertaking. But knowing that this will be a longterm highly beneficial relationship for both your participants and your organization should give you the courage to move forward!

by Nevin Adams, JD & Shannon Edwards

Reassessing Forfeiture Clauses

As if our jobs weren’t complicated enough, something that we thought we knew how to handle with very few questions or confusion has just gotten… complicated.

WHAT WILL THEY THINK OF NEXT?

I’M TALKING, OF COURSE, ABOUT THE REALLOCATION OF FORFEITURES – THOSE NON-VESTED BALANCES “LEFT BEHIND” BY TERMINATED PARTICIPANTS.

Roughly a year ago, the Treasury and IRS issued proposed regulations (Prop. Treas. Reg. §1.401-7) relating to forfeitures in qualified plans. In the proposed regulations, they gave us the answer to the question, “what is the deadline for the use of the funds in the plan’s forfeiture account?”

In doing so, they formalized their previous guidance that forfeitures must be “used no later than 12 months following the close of the plan year in which the forfeitures were incurred.” The effective date of the proposed regulation was January 1, 2024.

At the same time, they also gave us guidance on what to do with plans that had suspense accounts that had been accumulating for years. In fact, they were very generous – allowing plan sponsors to treat the forfeitures as if they had been incurred in 2024, which means

that they have until the end of the 2025 plan year to do something with those nonvested balances. The preamble to those proposed regulations also includes a suggestion that the plan document should include multiple options on how forfeitures will be used rather than limiting that use to a single option – so that the new timing requirements for the use of forfeitures will not be violated. For more details regarding the proposed regulations, be sure to read the article written by Robert Richter “You Have How Much in Your Forfeiture Suspense Account?”

That “latitude” notwithstanding, we were reminded of the importance of adhering to the plan document’s provisions regarding forfeitures when, last fall, Sypris Solutions, Inc. was ordered to restore $575,000 to their plans due

to a “misuse” of participant forfeitures. The Department of Labor filed a complaint against Sypris Solutions back in December of 2017 in the U.S. District Court, Western District of Kentucky, Louisville Division. The DOL claimed that Sypris Solutions and members of their retirement plan advisory committee failed to follow the plan documents for several of their 401(k) plans, documents that required the plans to use forfeitures to pay plan expenses. However, rather than following the document, the defendants instead used the forfeitures to reduce employer contributions. In this case there was no flexibility or decision to be made regarding the use of forfeitures by the company or the committee. The DOL argued by not using the forfeitures to pay plan expenses, the participants were harmed due to increases in the expenses they had to pay, and the employer benefited. If you would like to read more, you can refer to the article written by Nevin Adams

on January 2, 2024 called “DOL Successfully Sues Employer for Misuse of Forfeitures.”

That long-standing practice of using plan forfeitures to offset employer contributions was recently drawn into question, courtesy of a halfdozen suits (as we go to press) filed by a law firm in South Pasadena, Hayes Pawlenko, LLP, asserting that the use of forfeitures to reduce employer contribution obligations

– even in cases where the plan document apparently allowed for that – is a breach of fiduciary duty. The suits –involving national, name brand firms like Intel, Honeywell, HP, and Clorox – have all been filed in federal courts in the state of California, and in four of the cases the defendants have filed a motion to dismiss.

In each of the cases the Hayes Pawlenko law firm, on behalf of the plaintiffs, asserts that the

fiduciaries of the plan failed to act in the best interests of the plan participants and instead unjustly enriched the defendants and/or the plan sponsor.

In one of those cases (Barragan v. Honeywell International Inc. et al.), Hayes Pawlenko argues that “ERISA requires Defendants to defray the plan’s expenses” and by not doing so and instead using the forfeitures to reduce

company contributions, they are using plan assets for the company’s benefits rather than the participants’ benefit. Unlike the DOL case against Sypris Solutions, Inc. mentioned above, in several of these cases Hayes Pawlenko acknowledges that the plan document authorizes the use of forfeitures to offset company contributions. They also completely disregard the fact that the use of plan

THE LAW IS CLEAR THAT AN EMPLOYER DETERMINES HOW MUCH MONEY IT WILL CONTRIBUTE TO A PLAN IN ITS SETTLOR CAPACITY... BECAUSE CONTRIBUTION DECISIONS ARE SETTLOR NOT FIDUCIARY IN NATURE, IT FOLLOWS THAT DEFENDANTS CANNOT BREACH ANY FIDUCIARY DUTY TO PARTICIPANTS...

forfeitures to offset employer contributions is allowed and has been allowed for years under the regulations. In fact, the IRS and Treasury refer to the ability to use forfeitures to offset employer contributions in their proposed regulations issued last year and mentioned above. They even encourage plan sponsors to make sure that their plans allow this option and other options to avoid an operational error. In my reading of the information regarding these cases, the attorneys are basing their arguments on the fact that the fiduciaries had a choice between using the forfeitures to reduce contributions or to pay for plan expenses. They are arguing that by choosing to use the forfeitures to reduce the contributions rather than reduce the participant expenses they did not act in the sole interest of the participants, but instead chose to benefit themselves.

However, in several of the motions to dismiss, the fiduciary defendants argue that the decision on how to use the forfeitures is a settlor decision not a fiduciary decision, and therefore,

there cannot be a breach of fiduciary duty. “The law is clear that an employer determines how much money it will contribute to a plan in its settlor capacity and may make such decisions solely in its own interest, without regard to the interests of plan participants. Because contribution decisions are settlor—not fiduciary—in nature, it follows that defendants cannot breach any fiduciary duty to participants by failing to cause the company to contribute more money to the plan.”

In fact, they go on to note that the plaintiff “has not alleged any facts to show that defendants could have caused the company to contribute more money, rendering plaintiff’s theory of injury entirely speculative. Plaintiff’s claims for breach of fiduciary duty should be dismissed as a matter of law.”

In essence, the arguments made by the defendants thus far have tended to emphasize that there’s no fiduciary breach because:

(a) funding a plan is a settlor, not a fiduciary function;

(b) a fiduciary does not control a company’s decision

to contribute assets to a plan; instead, the company makes plan funding decisions solely in its settlor capacity; and

(c) payment of benefits in accordance with the plan document is not a breach of fiduciary duty.

Additionally, they argue that there is no injury to the plan, that the plaintiff has failed to state a claim for violation of ERISA’s antiinurement provision, nor have they stated a claim for violation of ERISA’s prohibited transaction provisions nor stated a claim for failure to monitor fiduciaries – in other words, the participant-plaintiff has received all the benefits they are entitled to, and the notion that they would have received those amounts AND the reallocation of forfeited balances is speculative, at best. If the plan document allows the plan to make a choice between one option for disposing of their forfeitures and another, it may be best to document how that decision was reached, and why. Best practices would dictate that you review your plan document and make sure that forfeitures are being

allocated as provided for. In order to comply with the new deadline for disposing of forfeitures, plan sponsors may want to take the IRS’ advice and allow all of the options for disposing of them in their document. On the other hand, several law firms of note have recommended that the discretion on how to reallocate forfeitures be removed from the plan document – that the intended use going forward, be it to offset employer contributions, to pay expenses, or to reallocate to remaining participants – be spelled out in black and white in the document.

As for the litigation outcomes – only time will tell what the courts will decide. To read more about these cases be sure to check out the series of articles written by Nevin Adams as well as the article “Flexibility on the Use of Forfeitures-Not so Fast!!!!” written by Robert Richter.

Nevin Adams, JD is the (former) chief content officer for the American Retirement Association.

Shannon Edwards is the Owner of Tristar Pension Consultants.

by Doug Prince

Phasing Into Retirement

A “phased retirement” program can help companies cope with “brain drain” as large portions of the boomer and Gen X cohorts hit retirement age.

IMAGINE IF 39.6 PERCENT OF YOUR CURRENT WORKFORCE CAME TO YOU AND SAID THAT THEY WANTED TO RETIRE IN THE NEXT THREE TO SEVEN YEARS. WHAT WOULD YOU DO? HOW

would you make sure that you don’t lose key knowledge that runs your business?

Based upon the Bureau of Labor Statistics September 2023 study, that is the percentage of the American workforce that is age 55 and older.1 According to the Gallup July 2022 annual Economy and Personal Finance survey, the average employee expects to retire at age 66, but actually retires at age 61.2

In my 34 years of working with retirement programs, I have seen more and more people retiring in their 50s and early 60s. Whether due to COVID or other factors, the implications are significant: as the Baby Boomer generation hits 65 daily and Generation X approaches age 60, we face a substantial loss of intellectual capital from our economy.

Phased retirement is one way companies can help with the “brain drain,” yet surprisingly few companies have implemented structured initiatives. According to a Society for Human Resource

Management survey in 2010, only about six percent of companies operate a formal phased retirement program. Fast forward to today, and the landscape is slowly shifting, with approximately sixteen percent of businesses now offering such programs regularly.3

The need for these programs is underscored by employer and employee sentiment alike. A staggering 77 percent of employers agree that the knowledge older workers possess is crucial to business success. Similarly, more than half of employees express a desire to gradually reduce their working hours rather than immediately transition to retirement.

So why aren’t more companies adopting phased retirement programs?

Consider this scenario:

• We recently reviewed a client’s participant analytics. This client’s workforce boasts an average age of 48, but with a demographic

Footnotes

1 “Civilian labor force, by age, sex, race, and ethnicity”. U.S. Bureau of Labor Statistics.

2 Jones, J. M., “More in U.S. retiring, or planning to retire, later.” Gallup.com.

3 “Principal Financial Well-Being Index (2023 Wave 3).” Principal.

distribution resembling a barbell, indicating significant turnover potential. Without intervention, they anticipate 100 percent turnover within eight years – a situation not uncommon in today’s workforce.

WHAT TO DO, WHAT TO DO?

The solution lies in proactive measures:

• Understanding your workforce demographics is the first step in the process.

• Second is to look at the demographics by position to determine if there are more important areas of the business that needs more focus.

• Consider a phased retirement program and work with legal counsel to avoid potential discrimination issues.

• Review your retirement plan provisions to coincide with the phased retirement program.

• Make sure your retirement program is

https://www.bls.gov/emp/tables/civilian-labor-force-summary.htm

https://news.gallup.com/poll/394943/retiring-planning-retire-later.aspx

https://www.principal.com/about-us/global-insights/well-being-index-insights

competitively designed to attract younger workers to fill in the gaps.

Taking care of those with long service not only helps with “brain brain” but could also foster a culture of care and inclusivity. Picture the ripple effect of positive feedback from employees participating in the phased retirement program. Their firsthand experiences will undoubtedly resonate with their colleagues, contributing to a vibrant company culture, ultimately increasing employee retention.

Moreover, these programs can help combat the “grey ceiling” effect, providing younger employees with a clear path for advancement within the organization.

Phased retirement programs represent a genuine opportunity—they offer a pathway to a future where knowledge is preserved, and opportunities abound for all generations. Let’s embrace this chance to shape a better tomorrow.

Doug Prince is the CEO of MJ Retirement.

Participation Rates in 403(b) Plans at an All-Time High

PSCA’s 2023 403(b) Plan Survey shows record participation rates among plan design enhancements.

NEARLY ALL OF THE KEY PLAN METRICS WE TRACK IN 403(b) PLANS ROSE IN 2022, ACCORDING TO PSCA’S 2023 403(b)

plan survey, sponsored by HUB International and Principal Financial Group®. Contributions – both participant and employer – rose, likely bolstered by an increase in immediate eligibility and automatic enrollment. Two items remained low – loans and hardships. All of these indicators point to 403(b) plans being in really good shape at the end of 2022. Though we will likely see the impact of a turbulent 2023 on plans in the 2024 data, the fact that they recovered from the pandemic so quickly and that contribution rates were at all-time highs at the end of 2022, ultimately bodes well for their future.

Contributions

While participation rates in 401(k) plans dropped last year (according to PSCA’s 66th Annual Survey), participation rates increased in 403(b) plans in the same time frame – 80% of eligible employees contributed to their 403(b) plans in 2022, continuing an annual trend of a slight increase year-over-year. This annual slight increase has led to a 20 percent increase in participation rates over the last ten years.

Additionally, nonprofits contributed an average of 30% more to employee accounts – an average of $6,322 per participant. Contribution formulas are becoming more generous with average maximum contributions increasing from 5.8% of pay to 6.4% of pay in 2022.

Withdrawals

While contributions continue to increase, the percentage of employees tapping their accounts for loans and hardships during 2022 remained low. The use of plan loans ticked up to 10.3 percent of participants having a loan outstanding and 0.8 percent of total plan assets loaned. Though the percentage of participants with a loan did increase slightly, it is still the second lowest rate in a decade. Only 0.6 percent of participants took a hardship withdrawal in 2022, down from 1.5 percent in 2021.

Automatic Enrollment

Automatically enrolling employees into a retirement plan has been commonplace in 401(k) plans for a while now and may finally be taking hold in 403(b) plans after years of very slow growth. It was never very clear why the use of automatic enrollment in 403(b) plans lagged significantly behind their 401(k) counterparts, but that appears to be changing. Nearly one-third of nonprofits automatically enroll new hires into the plan, up from a quarter the year before, and double the availability of a decade ago.

by Hattie Greenan

Not only are organizations increasingly using automatic enrollment, but they are also using it with higher default rates and automatically increasing those default rates over time.

• Availability: The use of automatic enrollment jumped by nearly 20% in 2022 and is now used by 31.4% of plans, up from 26.5% the year before.

• Defaults: More than one third of plans with automatic enrollment use a default deferral rate greater than three percent (36.1%), up from 26.9% in 2021.

• Escalation: Two-thirds of plans now automatically escalate the default deferral percentage over time, up from 57% in 2021.

Other Plan Design and Administration Features

The survey also revealed increases in immediate eligibility to receive contributions, an increase in Roth availability, and an increase in the use of Investment Policy Statements (IPS).

• Eligibility: Nearly half of plans allow participants to receive matching contributions immediately upon hire (47.8%), up from 36.3% in 2021.

• Roth: Roth availability continues to climb with two-thirds now making it available as an option, up from fewer than a quarter of plans a decade ago.

• Investment Policy Statements: There has been a slow, steady increase in plans adopting an IPS with 63.3% of organizations now having one in place (up by 25% in a decade).

Availability of Roth Over Time Employees with an Account Balance

PSCA’s 403(b) Plan Survey is the only independent 403(b) research report that delivers actionable data on trends among plan sponsors in the nonprofit sector. For more survey results, visit https://www.psca.org/research/403b/2023AR

Hattie Greenan is the Director of Research and Communications for PSCA.

by John Sullivan

RETIREMENT BEYOND THE PLAN

AS AN INDUSTRY, ARE WE RESPONSIBLE FOR PARTICIPANT OUTCOMES BEYOND SUCCESSFULLY SAVING FOR RETIREMENT? IF SO, HOW? THE GAP BETWEEN RETIREMENT EXPECTATION AND REALITY IS GROWING. IS THERE A ROLE FOR PLAN SPONSORS IN THAT GAP?

IS IT POSSIBLE TO FAIL AT RETIREING?

The once preposterous question is increasingly commonplace, as longer life spans bring a corresponding need for sustained purpose and fulfillment. The opening montage of the movie The Intern perfectly encapsulates the problem. Widower Ben Whittaker (Robert De Niro) called retirement an “ongoing, relentless effort in creativity.”

“At first, I admit I enjoyed the novelty of it; it sort of felt like I was playing hooky,” Whittaker said. “I used all the miles I’d saved and traveled the globe. The problem was that no matter where I went, as soon as I got home, the ‘nowhere to be’ thing hit me like a ton of bricks.”

The former executive could only play so many rounds of golf, read so many books, and take so many cooking and yoga classes. He admitted he relied too much on his children and grandchildren to fill his time, and he eventually returned to work.

The need for an active and engaging retirement with a defined sense of purpose isn’t new, but for whatever reason, it appears to be nearing critical mass.

Is there a role for plan sponsors in helping participants prepare for all aspects of retirement? Perhaps to some extent, and perhaps not, but stepping back and viewing retirement from a holistic perspective can

help inform the plan’s design and administration, as well as participant education and any holistic financial wellness program.

FOUR PILLARS

Where does one begin with these “other things?” Christine Benz, Morningstar’s Director of Personal Finance and Retirement Planning, said it’s about helping to solve four interrelated needs typical of a successful retirement, “You want the finance piece to line up; you need to make that work,” she explained. “People tend to focus on the finance piece because it’s so quantifiable.”

post-work. I spoke with Dr. Laura Carstensen, director of the Stanford Center on Longevity, and she talked about how women, when you look at the data, tend to do a better job diversifying their social networks throughout their lives.”

The fourth piece is the all-important purpose, or something that animates the individual.

“I was struck by a conversation I had with Jordan Grumet, a hospice physician and financial independence blogger,” Benz noted. “He frequently talks about purpose, and he said people are paralyzed by what

you a reason to wake up in the morning,” she added.

So, how well is the industry performing when helping with all four? Benz was diplomatic. “Good financial planners are attuned to the holistic nature of retirement planning, not just the financial piece, and the financial advice industry is becoming more holistic overall throughout the entire life cycle. I think there’s more attention to overall wellness and the linkage between our financial health and other aspects of our wellness, so I think we’re improving.”

Access to an advisor that is a bit more holistic gives participants an added

“RETIREMENT IS LIKE GETTING MARRIED AND HAVING CHILDREN. YOU NEVER TRULY UNDERSTAND WHAT IT’S LIKE UNTIL YOU DO IT. ”

— FRITZ GILBERT

Not surprisingly, good health is next, and “whatever you can do to burnish your health, to take care of your health in the years leading up to and during retirement, is important.” Relationships are the third crucial element of happiness, something needed throughout retirement.

“Many people, men especially, tend to get much of their social network from their workplace,” Benz said. “When they step away, they haven’t lined up who their relationship resources will be

he calls the ‘Big P’ purpose, this idea that they need to start a foundation or fully devote themselves to a volunteer activity.”

But people can have many ‘small p’ purposes in life, maybe by nurturing a relationship with a partner or a hobby that’s fun but won’t necessarily change the world. And ‘small p’ purposes matter just as much as a ‘Big P’ purpose, so retirees shouldn’t be paralyzed when deciding what to do next. “It can be a lot of these smaller things that really give

opportunity to prepare for some of the other, inter-connected pieces of retirement.

“Based on the data I see, more employers are trying to keep participants in the plan longer,” Benz said. “That’s a potential touch point for retirement advisors and gives them the chance to play a more holistic role.”

FOUR STAGES

Retirement author Fritz Gilbert has interesting data on why the holistic role is so important. Gilbert, who

A Retirement 4x4

Retirees typically have four ingredients for a successful retirement, and four stages through which they pass (courtesy of Christine Benz and Dr. Riley Moyne):

Four Needs

1. Finances—Easier to focus on because it’s quantifiable.

2. Health—Whatever can be done to burnish health in the years leading up to and during retirement is important.

3. Relationships—A crucial element of happiness, something needed throughout retirement. Women are typically better than men at fostering social networks in retirement.

4. Purpose—Don’t be paralyzed by the ‘Big P’ purpose, people can have many ‘small p’ purposes in life, maybe by nurturing a relationship with a partner or a hobby that’s fun but won’t necessarily change the world.

Four Phases

1. Vacation (Honeymoon) Phase—No set schedule, lots of leisure. It begins to wear out in one year.

2. Lost and Loss—A loss of the Big 5 that people get from work: routine, identity, relationships, purpose, and, for some, power.

3. Trial and Error Phase—An attempt to regain purpose and enjoyment.

4. Reinvent and Rewire Phase—Getting the most from retirement by finding meaningful activities that provide a sense of accomplishment.

blogs at The Retirement Manifesto, joined fellow author Eric Weigel, a Certified Professional Retirement Coach, in researching expectations versus reality in pre-retirees and retirees.

“Your chance of depression goes up by 40% when you retire,” Gilbert said. “That’s where financial professionals can step in and provide a roadmap. They can provide value beyond the financial side.”

Several survey findings stood out, including:

• 52 percent of pre-retirees “mostly agree” that the retirement transition will be smooth, whereas only 32 percent of actual retirees feel the same way.

• 62 percent of retirees miss social interaction at work, whereas only 29 percent of pre-retirees expect it to be an issue.

• 38 percent of retirees miss the mental stimulation from work, yet only 21 percent of pre-retirees think they’ll miss it.

• 31 percent of retirees struggle with losing their sense of identity versus 22 percent of pre-retirees thought they would.

“Retirement is like getting married and having children,” Gilbert added. “You never truly understand what it’s like until you do it. People go into retirement with one set of expectations, and the reality is often different.”

He mentioned Dr. Riley Moyne’s The Four Phases of Retirement: What to Expect

When You’re Retiring and its companion Tedx Talk, which has received 2.6 million views.

The four phases are:

1. Vacation (Honeymoon) Phase—There is no set schedule and lots of leisure. It begins to wear out in one year.

2. Lost and Loss—A loss of the Big 5 that people get from work: routine, identity, relationships, purpose, and, for some, power.

3. Trial and Error Phase— An attempt to regain purpose and enjoyment.

4. Reinvent and Rewire Phase—Getting the most from retirement by finding meaningful activities that provide a sense of accomplishment.

“Fully 85 percent of retirees enter phase two wondering what they’ll do with the rest of their lives,” Gilbert said. “To answer your question, can people fail at retirement? I think the people that fail get stuck in that phase. There’s so much more you get from your job than just the paycheck, and there’s a lack of awareness of that. Those non-financial elements you receive from work bring value to your life, but you don’t think about it. I frequently hear from readers that they are stuck in that phase. The difference in retirement is that it’s on you to figure it out.”

While acknowledging that returning to work is an option, he encourages retirees to first experiment in other ways.

“Think about those five attributes you once got from

work besides the paycheck (routine, identity, relationships, purpose, power) and decide if there are ways to develop them through new interests that don’t come with the obligation of an everyday job. If you can’t, go back to work so you’re fulfilled, which is fine, but people who return to work usually haven’t tried to find ways to get fulfillment outside of work. Maybe it’s not a failure, but I wouldn’t say it’s a success.” Like Benz, he believes financial professionals are getting better at addressing nonfinancial issues but still have much to do.

“We’re in the early days,” he claimed. “The good news is that the industry recognizes the need, but I suspect the percentage of financial professionals who have truly incorporated a more holistic non-financial element into their retirement planning is probably still a small percentage of the population at large.”

While specifically addressing some of these aspects of retirement is outside the scope of a plan sponsor’s ability, providing access to companies and providers who can specifically address some of them is a great start. Examples might include offering access to an advisor that takes a more holistic approach, offering preretirement counselling, and addressing healthcare concerns.

John Sullivan is the Chief Content Officer for the American Retirement Association.

by Emily Kile-Maxwell, Glenn Merten, & Kendra Roberson

Fiduciary Friends: Health Plan Fiduciaries Now Face Retirement PlanLike Lawsuits

Health plan fiduciaries are subject to the same duties as retirement plan fiduciaries to monitor plan costs and service providers. It may be difficult to avoid, but plan sponsors and service providers can at least limit their liability in any litigation that may be brought.

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Over the last decade, retirement plan sponsors and advisors have been targeted in fiduciary breach litigation, alleging failure to monitor and control costs to participants in retirement plans and offering poorly performing investment options in those plans.

Like retirement plan sponsors and advisors, fiduciaries (typically officers or employees of the plan sponsor) of employersponsored health and welfare plans have a duty to prudently select service providers to their plans and monitor the fees and costs of the plan. Service providers to health plans typically include insurers, third-party administrators, pharmacy benefit managers, brokers, and consultants.

Newly required disclosures regarding healthcare costs, such as medical provider rates and prescription drug prices, fees and compensation received by brokers and consultants to health and welfare plans, and data analyzing prescription drug and healthcare spending, have greatly expanded the scope of information available to health plan fiduciaries and the plaintiffs’ bar. It now looks like health and welfare plans will have their turn in the barrel.

Lawsuits alleging failure to comply with fiduciary duties have already been filed, and sophisticated plaintiffs’ firms are exploring potential claims.

This article explores the new disclosures that provide the impetus for the anticipated wave of litigation, the claims that may be brought, and the efforts plan sponsors can take to limit their liability.

Covered Service Provider Disclosures

The Consolidated Appropriations Act of 2021 (“CAA”) amended ERISA to require that before entering into or renewing a contract with a health plan, covered service providers (defined as those that provide brokerage or consulting services to a plan) deliver information to responsible plan fiduciaries sufficient to assess the reasonableness of their compensation.

In addition to a description of the services provided and any compensation received directly from the health plan, covered service providers must provide a description of any indirect compensation they expect to receive from any source – for example, a description of potential commissions for facilitating selection of an

insurance product, thirdparty administrator, or other service provider to a health plan.

Any contract between a covered service provider and a health plan sponsor (or fiduciary) where the required disclosures are not provided is considered to be a prohibited transaction under ERISA, which, as discussed below, is subject to greater enforcement rights and penalties. The disclosures also may serve to help plan fiduciaries identify potential conflicts of interest that a consultant or broker may have with another service provider for the health plan.

Public Cost Disclosures by Health Plans

“Transparency in Coverage” rules published by the Departments of Labor, Health and Human Services (“HHS”), and the Treasury require plans to disclose, on publicly available websites, pricing information in “machinereadable” files, meaning files that can be imported or read by computer systems. Plans must publish three separate machine-readable files:

• One showing negotiated rates for all covered services between the plan and in-network providers;

Any contract between a covered service provider and a health plan sponsor (or fiduciary) where the required disclosures are not provided is considered to be a prohibited transaction under ERISA, which, as discussed below, is subject to greater enforcement rights and penalties.

• One showing historical payments to, and billed charges from, out-ofnetwork providers; and

• One showing in-network negotiated rates and historical net prices for all covered prescription drugs, broken down by pharmacy location.

This published data aims to make information available to the public to promote innovation and pricing transparency. Requiring the data in machine-readable format further promotes transparency by facilitating data analysis by sophisticated actors.

Already, the plaintiff’s bar is creating algorithms to dissect and parse this data and pinpoint fees and expenses to challenge in litigation.

In addition, health plans must make available to plan participants an internet-based self-service tool that estimates the participant’s cost-sharing liability for covered items of services. Participants can use this tool to determine

their out-of-pocket cost for any particular service or procedure.

Drug Reporting

The CAA also introduced new reporting requirements for health plans related to prescription drugs and healthcare spending.

Health plans must report certain information to the Departments of Labor, HHS, and the Treasury (called an “RxDC” report), which those departments will use to prepare a bi-annual report on prescription drug prices.

Insurers are responsible for submitting the RxDC report for insured health plans, and plan fiduciaries are responsible for submitting the report for self-insured plans. However, insurers and health plan fiduciaries can delegate the reporting responsibility to other vendors, including their third-party administrators (TPAs) or pharmacy benefit managers (PBMs). Plans must report data on prescription drug and health care spending, prescription drug

rebates from drug manufacturers, participant-paid premiums, and other cost-sharing elements, as well as the identity of prescription drugs that account for the most spending or are prescribed most frequently. TPAs and PBMs may report most of the required information on an aggregate basis, separated by market segment.

RxDC reports are intended to identify potential causes of increases in prescription drug and healthcare spending and to promote transparency in prescription drug pricing, including the effect of prescription drug rebates.

Gag Clauses

To further promote transparency and empower participants to make informed choices about their health care, the CAA requires service providers to supply provider-specific cost or quality of care information to plan sponsors and participants, among others. In addition, service providers who offer provider networks for a health plan may not include “gag clauses” in their contracts with providers or health plans that would directly or indirectly prohibit plans from:

1. Providing provider-specific cost or quality of care information or data to the plan sponsor, participants, or referring providers.

2. Accessing de-identified claims data.

3. Sharing the foregoing information with a HIPAA business associate.

Plans must also attest to various federal agencies that they comply with the gag clause rule.

Impact of Disclosures on Fiduciary Litigation

ERISA imposes duties on fiduciaries who administer health plans to protect plan assets and participants, including duties of loyalty and prudence. The duty of loyalty requires plan fiduciaries to

administer the plan solely in the interest of participants and beneficiaries and to provide benefits under the plan, and pay plan expenses. The duty of prudence requires plan fiduciaries to act with the care, skill, prudence, and diligence that a prudent person would use in similar circumstances.

In the context of health plans, the duty of prudence generally requires plan

fiduciaries to follow a prudent process in selecting service providers, monitoring service provider compensation and performance, and overseeing health plan costs. Plan costs have been a driver of fiduciary retirement plan litigation for years, and they may be for health plans now, too.

Taken together, all of these provisions of the CAA dramatically increase the amount of data that covered

service providers have to provide and that plan fiduciaries have available to consider when they are making fiduciary decisions about health plan administration and, in particular, selecting and monitoring service providers to their health plans. ERISA’s duty of prudence focuses on the process fiduciaries used to make decisions about the plan. As part of a prudent process, plan fiduciaries must demonstrate that they are aware of the information in their possession and otherwise available to them regarding service provider compensation and performance, as well as health plan costs and that they have considered how best to use that information to make decisions about plan administration. Plan service providers should expect plan fiduciaries to carefully review their required disclosures with this context in mind.

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Plaintiffs’ attorneys may also use the increased publicly available information about health plan costs to bring breach of fiduciary duty claims against health plan fiduciaries.

The duty of prudence is process-based, not results-based, so theoretically, plaintiffs should not be able to bring a claim based solely on information about health plan costs (the ultimate result of the fiduciary process). But courts often recognize that ERISA plan participants rarely have information about the processes behind fiduciary decision-making before filing suit, so many courts will allow participants to infer an imprudent decision-making process based solely on cost information and proceed to discovery in litigation—which may require significant involvement from plan service providers—on that basis.

In addition to breach of fiduciary duty claims, the CAA potentially creates new prohibited transactions for health plan fiduciaries. The covered service provider disclosure requirements described above create a liability standard very close to strict liability for plan fiduciaries. Under the CAA, payments to a health plan’s covered service provider are a prohibited transaction under ERISA unless the plan receives the required disclosures from the covered service provider, even if the services are necessary for the administration of the plan and even if the covered service provider’s compensation is, in fact, reasonable.

The only exception is plans that (1) request the required disclosures from their covered service providers in writing and (2) certify to the Department of Labor that the written request was made and that the covered service provider failed to provide the disclosures. In that case, the transaction isn’t prohibited solely for failure to receive the disclosures. However, it still has to satisfy other requirements (namely, that the service provider received reasonable compensation for services necessary for the plan’s administration).

Risk Mitigation

Plan sponsors hoping to avoid litigation—or, at a minimum, prevail in litigation if it is brought—may find it helpful to start by identifying the fiduciaries responsible for administering their health plans and ensuring they have received training on their responsibilities.

The primary responsibilities of health plan fiduciaries—who can include the plan sponsor’s Board of Directors, employees, or officers—are typically to select and monitor service providers and to adjudicate claims and appeals (or monitor claims and appeals adjudicated by third-party administrators to whom the fiduciary has delegated this responsibility).

Health plan fiduciaries may engage experts to assist them in meeting their responsibilities but should ask about any conflicts of interest that the experts may have and ensure that the experts’ compensation (including indirect compensation) is reasonable.

In selecting and monitoring service providers for health plans, some strategies for health plan fiduciaries to consider, and of which covered service providers should be aware, include:

· Regularly conduct requests for proposals for service provider services.

• Regularly review and benchmark service provider fees and the cost and quality of the services provided under the plan.

• Consider whether the information in the new CAA disclosures (e.g., machine-readable files, prescription drug reports) can be used by consultants to help inform benchmarking and other cost analysis.

• Obtain and understand required fee disclosures from brokers and consultants, especially concerning indirect compensation.

• If covered service providers fail to provide required disclosures, use the mitigation procedures to limit potential liability by (i) requesting the disclosures in writing and (ii) certifying to the Department of Labor that the disclosures were requested and not provided.

• Ensure that contracts with service providers provide audit rights and access to information needed to monitor performance and fees.

• Conduct regular audits to assess fees and performance.

• Consider theories advanced in pending fiduciary litigation to inform strategies for selecting and monitoring service providers.

• Document the processes for selecting and monitoring service providers.

When monitoring service provider compensation, plan fiduciaries should consider all compensation service providers receive in connection with their services to the plan. “Indirect” compensation, meaning amounts that the service providers receive from third parties in connection with services to the plan and not from the plan sponsor or plan participants, has been hotly litigated in the retirement plan space.

Some courts have held that plan fiduciaries may breach their fiduciary duties or engage in prohibited transactions if they fail to take indirect compensation into account (even if a service provider’s direct  compensation received from the plan and its participants is reasonable).

Conclusion

Health plan fiduciaries are subject to the same fiduciary duties as retirement plan fiduciaries to monitor plan costs and service providers. Recent legislative changes and litigation have spotlighted health plan costs and service provider compensation, opening the door to lawsuits against health plan fiduciaries. It may be difficult to avoid litigation, but plan fiduciaries and their service providers can make efforts to limit their liability in any litigation that may be brought.

Emily Kile-Maxwell is a litigation associate with Faegre Drinker Biddle & Reath, LLP. Glenn Merten and Kendra Roberson are partners with the firm.

by Nevin E. Adams, JD

Shifting the 401(k) ‘Balance’

Will IBM’s move to a cash balance plan start a trend?

IBM RECENTLY ANNOUNCED IT IS MAKING CHANGES TO ITS 401(K). MORE SPECIFICALLY, EFFECTIVE IN 2024 THEY ARE REPLACING THE MATCHING CONTRIBUTION IN THEIR 401(k) WITH AN EMPLOYER CONTRIBUTION TO A CASH BALANCE PLAN.1 IN THE DAYS THAT FOLLOWED, THE NEWS WAS PICKED

up in a couple of different trade publications—the implication being that this might be signs of a new shift in plan design. Heck, even Teresa Ghilarducci weighed in,

championing the “evolution” to a defined benefit structure from the “flawed” 401(k). She never misses an “opportunity.”

Readers here are likely familiar with the basic

concepts of a cash balance design. Technically a defined benefit plan, it’s generally referred to as a “hybrid” because it also has a number of participant-friendly aspects that it shares with a defined contribution plan, notably an account balance (though it’s a “notional” one) that is shared with participants. The benefits

accumulate somewhat evenly over time, rather than being more service “back-loaded” as traditional pension plans tend to be. But just like a traditional DB plan, cash balance plans are funded by the employer on an actuarial basis, and the investments are employer-directed, ostensibly with an eye toward

Michael Vi / Shutterstock.com

the benefit obligations that are accruing. Also, some cash balance plans are insured by the Pension Benefit Guaranty Corporation (PBGC), just like traditional pensions (and yes, the employer has to pay premiums).

That controversy notwithstanding, cash balance plans have, in recent years, proven to be quite popular— particularly among smaller employers because they provide more funding flexibility than a traditional DB plan, and the potential for better benefit accumulation than the nondiscrimination and top-heavy test limits often allow with defined contribution plans, such as a 401(k). But what IBM has done – basically replacing

IBM employees stand to get this employer contribution, not just those who contribute to the 401(k) (though with what is said to be a 97 percent participation rate, it seems that few are left out at present, though we don’t know their contribution rates). You don’t have to be a cynic (though it helps) to imagine that IBM has done the math here, and that the change is either neutral, or inures favorably to their bottom line.

While it’s certainly an interesting move — by a company with a history of interesting benefit moves — and, despite the enthusiastic response of Professor Ghilarducci, it seems unlikely to catch on more broadly. Retirement savers have not only long understood and appreciated not only the value of an employer match, and so seem unlikely to embrace “losing” that to a new plan they don’t

AS FOR IBM, WHILE EXTERNAL PERSPECTIVES ON THE ANNOUNCEMENT APPEAR TO BE LARGELY POSITIVE, IT REMAINS TO BE SEEN HOW IT WILL BE ACCEPTED BY THOSE IT IS OSTENSIBLY DESIGNED TO BENEFIT.

it triggered a couple of participant lawsuits from individuals who thought their benefits had been reduced in the move—an age discrimination suit they won, only to lose on appeal. That said, even in finding for IBM, the appellate court acknowledged that older workers were generally correct in perceiving “that they are worse off under a cashbalance approach” because such a plan eliminated the possibility of earning larger benefits as they neared retirement. “But removing a feature that gave extra benefits to the old differs from discriminating against them,” the judge wrote.

Of course, cash balance designs aren’t new, nor are they new at IBM, which (in) famously shifted to one from a traditional defined benefit plan back in the late 1990s. I say “infamously” because Footnotes 1

its 401(k) match with a cash balance plan contribution does appear to be unique – and worth noting.

As for IBM, while external perspectives on the announcement appear to be largely positive, it remains to be seen how it will be accepted by those it is ostensibly designed to benefit. Some have already commented that the loss of a match will reduce incentives to save in the 401(k) – others that the resulting diminishment in the 401(k) balance will undermine the amounts available for loans and hardships, though that arguably isn’t the purpose for those 401(k) savings, either. On the other hand, all eligible

People tend to forget that the contributions defined in a defined contribution plan can be (re)defined each plan year—and while reductions are rare, they are not unprecedented. That said, even in rolling this new benefit out, IBM has (according to an internal communication memo posted online) acknowledged a reduction; “IBMers will also receive a one-time salary increase to offset the difference between the IBM contributions they are currently eligible to receive in the 401(k) Plan and the new five percent RBA pay credit”— though arguably that’s trading a pre-tax benefit for one on which taxes will be due immediately.

understand, however the tradeoffs are presented. As for plan sponsors — well, inertia is a powerful force in plan design as well—and a big design change that requires sensitive (and likely) ongoing communication will almost surely give pause to even the most innovative.

That said, it should serve as a reminder that plan designs can, and should, serve multiple purposes. It will be interesting to see how this one pans out.

Nevin E. Adams, JD is the former Chief Content Officer for the American Retirement Association.

by Hattie Greenan

Quarterly Question Roundup

A summary of the QOTW responses for the first quarter of 2024.

PSCA CONDUCTS A ONE-QUESTION POLL OF MEMBERS IN ITS WEEKLY ICYMI NEWSLETTER, CALLED QUESTION OF THE WEEK (QOTW) SO FAR IN 2024, WE HAVE ASKED PLAN SPONSORS A

few repeated questions from 2023 about the SECURE 2.0 optional provisions to capture trends on the new features, as well as a few plan design questions. A summary of the results follows.

SECURE QUESTIONS

In January of 2023, we asked plan sponsors their initial reactions to several of the, at that time, recently passed SECURE 2.0 optional provisions, including emergency savings provisions, the student loan match, and employer contributions as Roth. Now that plan sponsors have had a year to consider these provisions, we reassessed where they stand on these provisions – what they have decided to implement or what guidance they are still waiting on.

Student Loan Matching

One of the optional provisions in the SECURE 2.0 Act that some employers were very excited about is the provision to allow a 401(k) match based on a participant’s student loan payment rather than deferrals. This was seen by many as a way to help young (or not so young) employees start saving for retirement earlier as student loan payments often force employees to delay saving for retirement until they are more financially secure. The excitement about this provision is highly variable across industries – many do not have a workforce that has student loans, while other industries do and see this as a great way to add value and recruit top talent in a tight labor market. This provision is now effective (as of Jan. 1, 2024) and though our surveys last year showed that a handful of companies were moving forward with implementing it, most were focused on the mandatory provisions of SECURE 2.0 and/or waiting for some of the technical complexities to work themselves out.

Plans Adding Student Loan Match

Provision

At this time, five percent have implemented this program or will implement it this year with 19.2% currently considering it, and 12.2% unsure. That leaves nearly two thirds that are not implementing this provision. Select comments include:

• This would be administratively challenging to manage. Our 401(k) match is automatically calculated and sent to our recordkeeper each payroll. This process would have to be manual since there is no 401(k) deduction in the payroll system for it to calculate the match.

• Would like to see that the match will not impact NDT

• No - it is fundamentally inconsistent with our benefits philosophy

Emergency Savings

The SECURE 2.0 Act included two provisions geared towards helping employees handle financial emergencies. One provision is a penalty-free distribution of $1,000 per year from the 401(k) account and the other is the PLESA (Pension Linked Emergency Savings Account). We first asked sponsors about their interest in these provisions in January of last year and at the time (still early in processing all the provisions in the act), more than half were unsure, more than a third were not interested in either, and ten percent were interested in adding the distribution provision only.

In the last year, interest in the two provisions has not changed much at all – the only thing that has changed is that a large number of those who were unsure last year are now not interested in either.

Plans Adding Emergency Savings Provision(s)

Select comments include:

• Would consider the emergency distribution once RK can handle. I would use this as a “marketing” strategy to increase participation in the 401(k) - we do not have auto-enrollment.

• Retirement savings is not emergency savings. We do not plan to correlate the two.

• Too cumbersome to administer – value to participants isn’t worth the effort, we’ll look at other products.

Roth Treatment of Employer Contributions

Fifteen percent of plan sponsors have added the optional provision of SECURE 2.0 to allow participants to elect Roth treatment of employer contributions, and a quarter of plans are actively considering this provision. Nearly forty percent have not and will not be implementing this provision. Allowing Roth treatment of employer contributions has been the most popular of the optional provisions since SECURE 2.0 was signed into law and though a few more have implemented it than said they would a year ago, many more have definitely decided against it. Though many plan sponsors like this provision in theory, and the recent guidance has made it more attractive to offer, many don’t want the added administrative complexity, especially if they already allow in-plan Roth conversions.

have a better understanding of what their current retirement accounts will provide in terms of income in retirement, so they can make adjustments as needed. Now that we are a full year past the implementation deadline and plan sponsors have provided this documentation to participants, we asked if they felt that this provision accomplished what it was intended to achieve … or not.

Nearly three-quarters of plan sponsors (73.7%) noted no discernable difference (with many stating that they don’t think participants even look at them) and only seven percent thought the disclosures have been helpful. Fifteen percent of respondents indicated that they felt that the disclosures have been confusing to participants. Select comments include:

• I haven’t even noticed the disclosure with my own account!

• Our RK is only using delivered language and won’t make it ‘user friendly’ – it is not helpful; it is confusing; and it is not appreciated by our participants.

• Have not heard any feedback at all

PLAN DESIGN QUESTIONS

Automatic Enrollment Deferral Rates

Once a plan sponsor decides to use an automatic enrollment feature, they must decide a few other items including the default deferral rate, the default investment option, and whether to autoescalate the deferral rate over time. Though the default investment option is most commonly a target date fund (85% of plans), and two-thirds of plans automatically escalate default rates over time (a third automatically as an opt-out and a third voluntarily as an opt-in), the default rate is more variable across companies.

Select comments include:

• A few years ago we added the ability to do in-plan Roth conversions in our plan. Our participants can choose to convert any source (including employer match) to Roth so we do not see a need to implement this optional provision allowed by SECURE 2.0.

• Unnecessary administrative complication - we allow in-plan Roth Rollover and that suffices.

• Very unlikely to do this until all details are worked out and payroll and plan recordkeepers have built out fully all the required capabilities. Making changes to payroll is super challenging.

Lifetime Income Disclosures

One of the SECURE Act of 2019 provisions requires plan sponsors to provide a lifetime income projection to participants at least once a year. The purpose of this provision is to help participants

Much has been pontificated about default deferral rates over the years – the standard was (and is still most commonly) three percent for some reason no one is quite sure of (it was used as an example in guidance 20+ years ago and seems to have stuck?), yet we know three percent is not enough to build a secure retirement. There was conventional wisdom that a high default would increase opt-out rates and that it is better to start low then increase (or educate about increasing), but then there was research that defaulting at six percent does not in fact increase opt-out rates. For the last few years, we have looked at whether plans automatically enroll participants at a default rate high enough to receive the full employer match or if they enroll at a lower rate (and sometimes increase over time).

In a January QOTW, two thirds of respondents indicated they use automatic enrollment, and of those that do, nearly 60% enroll participants at the maximum match rate (57.1% of respondents) and 27.6% enroll at a lower rate and escalate to the maximum match rate (or beyond), while only 12% default participants at a rate lower than the match rate and leave it there. Select comments include:

• Auto enroll is 4% if no enrollment action is initiated.  We match 100 percent up to 7%

• Reconsidering [enrolling below the max match rate] to add auto escalation and a higher default rate.

• [Defaulting at the max match] is the best value to the employee.

Pre-Retiree Resources

Companies offer retirement plans for a variety of reasons, and that reason informs how the plan is designed and what resources are provided to employees to help them participate and save. For the last few years, we have been hearing about helping participants not just accumulate assets but helping them decide what to do with those assets once they retire. But also, some companies provide resources to participants beyond just financial resources to help them prepare for retirement in multiple capacities. We wondered if this is a topic top of mind for sponsors and if so, what types of recourses they are providing. In a recent QOTW, we asked sponsors what resources, if any, they provide to employees nearing retirement age – about half of respondents provide some type of targeted resources to pre-retirees.

The responses were almost completely evenly split – 52.3 percent indicated they provide some type of support to preretirees, and 47.7 percent indicated they do not. Among those that do not, several indicated that they feel like they should, they just don’t know what type of support they can and should provide. Select comments include:

• This is currently a huge topic for us. There isn’t anything out there beyond – go make an appointment with the retirement plan provider and social security. We are actively looking for guidance.

• We provide information on Social Security and Medicare. We also provide information to participants regarding setting goals that they might want to accomplish during retirement.

Forfeitures

There have been several lawsuits recently alleging breach of fiduciary responsibility by plan sponsors due to the way in which

forfeitures are allocated. To date, none of the lawsuits have moved forward or have been found in favor of the plaintiff, but we wondered if this new avenue of legal action was prompting plan sponsors to reevaluate their forfeiture policies. So far, most plan sponsors are comfortable with their current policies and feel that as long as they are following the plan document, they should be fine. Fewer than ten percent of plans (7.1%) are currently reevaluating this policy, though many are monitoring the outcomes of the current litigation to inform any future changes. Select comments include:

• Although we will not be changing our forfeiture policy, I did reach out to our broker to confirm that we are indeed able to use forfeitures to reduce our match and that we are not in breach of fiduciary responsibility specifically because of all these recent lawsuits.

• Discussed at our quarterly committee meeting and decided that ERISA says to follow plan language which allows forfeitures to offset employer contributions. As long as following plan language, feel comfortable with our current policy.

• From a litigation standpoint, we are not concerned about our current policy or it’s execution. From a legislative standpoint, this could be a concern if our lawmakers got involved to implement more of a wholesale change on treatment of forfeitures.

QOTW runs every Monday – if you have a question you would like us to ask, send it to research@psca.org.

Hattie Greenan

the Director of Research and Communications for PSCA.

is

by Hattie Greenan

The Role of the Employer in Helping Employees Retire

What role should the employer have in helping employees transition out of the workforce and into retirement?

THE THEME WE ARE EXPLORING IN THIS ISSUE IS HELPING PRE-RETIREES TRANSITION OUT OF THE WORKFORCE AND INTO RETIREMENT. THIS INCLUDES FINANCIALLY, BUT ALSO INCLUDES HELP WITH OTHER ASPECTS OF PREPARING FOR RETIREMENT: HEALTHCARE, MENTAL HEALTH RESOURCES, LIFE STAGE PLANNING, ETC. FOR THIS ISSUE’S PLAN SPONSOR

Perspective article, we asked members not just what they do in this area, if anything, but also what their company’s philosophy is around this topic – whether they view it as the role of the employer to holistically help employees prepare for retirement or view it more traditionally in terms of offering a quality retirement plan to employees is sufficient.

I received a LOT of responses on this topic with several people stating how important this topic is to them and some very

thoughtful responses that could be standalone articles. Though there are some very passionate and dedicated respondents who care deeply about preparing their employees for retirement in all ways, the majority provide minimal resources, if any. Many respondents indicated they would like to do more but either don’t know what to provide, don’t have access to resources, or can’t get buy-in from the C-suite that this is something they should allocate resources for. First lets look at corporate philosophy around this topic, then we’ll look at what resources companies are currently providing.

CORPORATE PHILOSOPHY

One of the common themes in the responses about whether it is the role of the employer to help employees transition out of the

LARGE UTILITY COMPANY: OVERALL, I WOULD SAY WE BELIEVE OFFERING A QUALITY RETIREMENT PLAN IS SUFFICIENT. WE RELY ON OUR RECORDKEEPER FOR MOST ALL EDUCATION AND COUNSELING FOR PRE-RETIREES. RETIREES ARE GIVEN A RETIREE KIT WITH EDUCATIONAL MATERIALS AND INFORMATION. MY PERSONAL VIEW IS THAT THE EMPLOYER SHOULD HELP EMPLOYEES PREPARE FOR RETIREMENT MORE HOLISTICALLY. I DON’T THINK WE DO A SUFFICIENT JOB IN THAT REGARD, BUT I’M NOT SURE THAT’S ABNORMAL.

workforce that became clear is that there is often a disconnect between the personal beliefs of the HR person responding to the question, and corporate philosophy. In a few cases, the respondent has full corporate support and buy-in to build out a pre-retiree program (a few companies are currently assessing this and building out programs) while many others stated they feel like they should be, but the company feels that providing a high-quality plan and pointing them towards an advisor is sufficient.

Following are select responses to the primary question of whether helping employees transition into retirement holistically is the plan sponsor’s responsibility.

Large technology provider: “I absolutely believe the role of the employer needs to consider preparing for retirement holistically. I am in the midst of building out a pre-retirement resource platform for our employees. It’s all-encompassing, because I believe that pre-retirement starts the first day someone begins working. I want to get people thinking more about financial freedom or fiscally successful or something other than retirement. That means we need to help with debt management, financial literacy, coaching, and helping people understand the impact of their decisions – not that what they are doing is wrong, but that all actions have consequences. I think as an employer we owe it to them to help them understand the resources and benefits we offer so that they can take advantage of them at every stage in life.”

Small manufacturing company: “Yes – we do feel it is part of our responsibility as the employer to help our employees prepare for this transition. They have provided many years of loyal service to the company and our desire is to see them be successful not only in their career here, but also in their post-employment lives as well.”

Midsize manufacturing company: “We don’t think offering just a robust plan while employed is enough, so we’re inching our way towards catered offerings for this group.”

Large financial services company: “I think employers have an obligation to provide resources (content, maybe referral to an EAP or external SME on the topic) to pre-retirees to assist them, but we are careful not to “advise” of what to do, which is why I would think most employers stick to a traditional method but would love to hear how other employers are handling.”

Midsize manufacturing company: “We do think it is important to encourage retirement readiness and being an ESOP means our long-term associates do have more retirement savings than national averages.”

Large healthcare system: “I think the employer role is changing and trying to support employees into retirement can be a win-win. We do try to stay in touch with our retirees in the event they wish to come back to work contingent, part-time other. We had amended our pension plan several years ago to allow those age 65+ to start their pension while working. This allowed those who wanted to work to simultaneously collect their pension. We are currently doing an RFP on our retirement plan so it will be interesting to hear what the vendors offer. However, we realize this endeavor goes beyond the resources of our retirement plan vendor.”

Midsize financial company: “We have long-term employees who spend their entire careers with us so it’s important to us that they have the knowledge and resources to make good decisions and have a good retirement.”

by Hattie Greenan

Large government contractor: “I think this is a great topic and an area my company is starting to scratch the surface of. It is certainly in our businesses best interests to be engaged with our future retirees for our own succession planning, but we want that engagement to be positive and beneficial to the employee.”

Small IT company: “As the employer we do not get directly involved in each employee’s retirement plan – I am a department of 1.”

Midsize nonprofit: “We do feel it is the role of the employer to provide a holistic approach to help employees prepare for retirement, including reminders to log onto their ssa.gov to help them get a full view of what retirement looks like for them.”

RESOURCES PROVIDED

Resources provided vary greatly from not much to a comprehensive program with targeted communications. My sense from the reading through all the responses is that many would like to provide more support, but they don’t know what to provide, or have access to the resources to provide more. Select responses follow.

Large technology provider: “Today, we provide advice and financial counseling to all employees, and we are building out more specific pre-retiree focused programs that will try to address emotional changes as well as the mechanics of SSA, Medicare, and drawing down retirement savings. We are evaluating decumulation products but are not sure if we need or want to have something more formal. Employees have a myriad of distribution (and investment) options, and we spend a lot of time educating our employees – and our former employees. There are targeted newsletters, webinars, and 1:1 coaching sessions available.

We do have a destination plan; we encourage employees to keep assets in the plan and draw them down in a scheduled way. We let them roll over assets at any time (while active or terminated) so they have a single place to manage them. We also let terminated participants take and repay loans – we’d rather that than permanent leakage. We have low loan utilization, and it works for us. We have several million dollars roll into our plan each quarter from terminated participants too.

We have opportunities to work as a “consulting employee” to help move into retirement – it is job specific and driven by business need, but it is available. We also encourage part time work as an option as they move into retirement. Benefits are still available.

We have a strong financial wellness program that has shown ROI. We also make sure our folks know about resources we offer to help make this transition – estate and tax planning, EAP services, mental health, physical wellness programs, and others.

Every few years we also do a deep conjoint total rewards survey – we generally get 75% participation (and we have shy of

50k employees) so we know what they want, what they value, and this year we will be getting data to help us revamp our programs.

And, we are in a very big DEI data initiative right now – and we’re hoping that the data we receive from that will be a great overlay to retirement preparedness.”

Small manufacturing company: “Here are some of the things that we have incorporated into our discussions with pre-retirees:

• Retirement planning – in addition to presentations provided by our plan fiduciary advisor, we will line up one-on-one sessions for any employee participating in our plan to get advice on contributions; investment allocations and planning for retirement or other life events.

• On a less frequent basis we have held targeted meetings for those 60+ to address planning for income in retirement and tools to consider to be more income-oriented vs growth oriented to meet their needs – these discussions give consideration to other resources to meet income requirements such as social security and other nonretirement investments.

• We don’t actively promote keeping assets in the plan but encourage employees to consider whether taking out to an IRA will cost them more to manage or provide adequate flexibility.

• We have also incorporated separate discussions for this group about Medicare considerations and choices – this is one of the more complex areas to tackle.”

Midsize manufacturing: “This is an area that we’re currently lacking in. We defer to [our provider] and direct participants there. I’m not sure we’ll dive headlong into it any time in the near future, but we are dipping our toe in the water this year and offering a lunch and learn specifically geared towards pre-retirees. We’ll spend half the time on the financial side and half the time on the Medicare side. We are also offering 1:1s with an educational consultant [from our provider] next month.”

Midsize manufacturing: “The company doesn’t provide counseling per se, but we do provide a lot of information for our associates preparing for retirement.

• Training sessions cover what happens to ESOP, 401k and other benefits following retirement.

• They have access to a third-party retirement education advisor as well as a list of financial advisors recommended by their peers. We are careful not to recommend one over another, just provide the resources.

• They are provided resources to explore insurance options and another to help understand social security and Medicare rules.”

Large research center: “We have retirement counselors who are employees that every person retiring must meeting with. We still

have an open pension and retiree medical, so the counselor will review their estimated calculation 3 months prior to retirement, walk them through the optional forms of payment and help them enroll in Medicare supplement plan and prescription drug plan. We encourage them to keep their assets in the 401(k) plan but do not necessarily counsel on the 401(k) plan. That is the extent to which we assist with at this time.”

Large healthcare: “We recently terminated our pension plan that was administered in-house by my team, so we are expanding our services to assist with pre-retirement resources. Prior to this time (pre-covid) we began offering retirement seminars where we included representatives from Medicare as well as our health plan that offered Medicare plans. Now, we’ve been working with them again to set up a Medicare advocacy service to answer questions on Medicare and assist with plan selection. We’ve also been reviewing other similar services such as SmartConnect that already has this offering on a national basis.

As far as financial advice and strategies, employees do have the ability to meet with [provider] reps that are regularly at our sites. We have a scheduling tool where employees can schedule a 30-minute consultation. We had “Retirement Parties” back in

2016 and are working to do something similar this Spring. Being in health care we find it challenging to reach employees, so our goal is to entice them with a “fun” theme – this year we have a large Plinko board in a visible place to let them know how and where to get additional resources. We’re working to build out our Intranet content to include Medicare information, planning resources, and other. We have a long way to go so information from others who’ve done this is great. Your questions also provoke additional thoughts. We do offer monthly webinars including topics such as decumulation, financial wellness, estate planning, and more. However, we need to make this information more regularly/readily available. I like the life stages idea and think it would be great to create learning tracks for employees at various stages of career/ savings journey.”

Midsize financial company: “We have traditionally just pointed them to the resources. However, we are in the process of working on educational pieces, including more detailed information on options within their 401(k) and other information such as Medicare options, COBRA, etc. It’s in the early planning stages but we really want to add value to our employees that they can use as they start getting closer to retirement.”

HIGHER EDUCATION: “WE PROVIDE PRE-RETIREE INFORMATION AS PART OF OUR PROCESS. WE SHARE WITH THEM INFORMATION REGARDING THEIR MEDICAL, DENTAL & VISION COVERAGE OPTIONS. WE ALSO PROVIDE THEM WITH INFORMATION REGARDING MEDICARE/MEDICAID & REQUESTING FUNDS FROM THEIR RETIREMENT PLAN.

Large utility provider: “We currently provide a guide to preretirees and a one-on-one review of retirement benefits the employee is eligible for through me. We do not have any counseling available other than what the record keeper and our EAP currently provides in the suite of their product. We have two closed pension plans that offer annuities. We rarely offer phased retirement; we try to host financial wellness seminars through our current record keeper and EAP. Our medical provider has a free Medicare resource.

We do this as a courtesy to our senior staff because we have found that in most cases people don’t know where to begin. We also have had them express that the thought of retiring is overwhelming to them, so we try to ease this feeling by giving them tools to assist them with this process.”

Large government agency: “To-date we have established a special page on an intranet with a number of self-service resources to help employees plan for retirement. Our long-term goal would be a more comprehensive program/approach.”

Large manufacturing/retail company: “We have taken more of a paternal approach with our employees when it comes to retirement. We still offer a pension plan to those not hired or rehired prior to January 1, 2020, and those that are eligible are only able to elect a monthly payment. A lump sum offering is only available to those that have an actuarial lump sum equivalent of less than $7,000. This will ensure they have a monthly income for the rest of their life versus taking a lump sum and outliving that money.

In the 401(k) plan we offer managed accounts and that is the QDIA for those 50 and older. This allows them to work directly with a registered representative to help them invest their money based on a variety of factors, including other retirement assets, risk tolerance, and goals for retirement.”

Small IT company: “We work with an investment advisor & our employees are welcome to reach out to them at any stage of their retirement planning process.”

Midsize law firm: “We do not offer any financial advice, but we do encourage “retirement planning” chats with our financial advisor when they visit. We also forward the webinars that are provided to our employees, and I send them individually (again) to my employees who are close to retirement. As for transitioning out of the office, we offer a reduced schedule and I speak with them about their plans, and I share some of the struggles that previous retirees had shared with me regarding their transition. I try to encourage the current employee to lunch with a retiree to chat about experiences and things they may have wished they knew when they retired.”

Midsize government: “We hold one-on-one opportunities for our employees to meet with a [provider] representative, to discuss pre-retirement/retirement opportunities. These meetings are available at the convenience of the employee who sets up a virtual meeting with the representative. We do offer one-on-one meetings once or twice per year that are on site also. Employees are encouraged to discuss their retirement goals options during these meetings.”

Midsize nonprofit: “We provide staff with multiple products (401(k) & HSA), educational webinars, and a yearly opportunity for our staff to have a personalized 1:1 with our fiduciary broker to get education on their retirement goals. We also provide EAP, will preparation, and encourage staff to participate in the 401(k) on an ongoing basis.”

Midsize health care/hospital: “We do not provide materials for retirement planning specifically. Our service provider provides retirement/financial planning services to our employees. Most of our soon to retire participants will meet with [provider] as they provide 1:1 meetings to participants each quarter. We pay for these quarterly meetings as part of the retirement plan administration costs.”

CONCLUSION

While most respondents stated they do believe it’s the role of the employer to help employees transition into retirement holistically, those that are empowered by their companies and allocated the resources to do so are in the minority. Those that do offer a robust “pre-retiree” program are typically (very) large companies who can afford a little altruism to build good will. Most respondents wish they could do more, but they are often already doing so much with so little (and no corporate buy-in) that often a packet of paperwork with a list of resources, a place to find a few webinars, and/or a phone number for an advisor are all they are able to provide.

I think we might often miss the realities of the small and midsize companies whose focus is on keeping the company afloat and not

Another “Perspective”

This response I wanted to include in its entirety because I think its an important perspective, and one that I think is common (particularly among small organizations in retail or similar industries), though not commonly shared. It also exemplifies the care that I think a lot of our members feel for their employees and frustration at not being able to do more.

Midsize retail company:

While historically we have had aboveaverage retention for the retail industry, we still have a younger population and a small percentage of employees who retire from our company. Most that do (or likely will) are at the corporate level. We also used to be composed of primarily full-time employees, but over the past several years have increased our part time workforce significantly, but we do allow immediate participation (contributions) in the plan and 4% matched contributions after 1 year and 1000 hours, fully vested (safe harbor).

There has not ever been much information offered in the way of education about retirement plans (apart from enrollment materials), even for the general employee, and our pre-retiree group has not had any focused direction or planning. While there is a committee (C-suite) that meets with an advisory group, to discuss plan

on the larger ideals of holistic wellness and support (see sidebar article for an example). It is possible that when we talk about the need for companies to provide these services, from an almost altruistic place because it doesn’t necessarily hit the bottom line (though an argument can be made for phased retirement and encouraging employees to keep assets in the plan), that we are speaking from an idealistic place of privilege that those in the trenches cannot access. That said, there are some great ideas and examples in this article of things that employers are doing to support employees transitioning out of the workforce.

changes and investment selections, nothing is communicated to me (as the employee liaison and general Admin for the plan) and my occasional efforts to reach out to the staff with information (usually via all-company emails) are largely ignored. I would like to promote some real education for all participants, and particularly for those who are in retirement range, but do not have any idea how to begin or what to focus on first.

Even when employees leave the company, unless they inquire, and are referred to me, not much is done in the way of guidance or discussion about their account balances.

I think there is a large disconnect between the few at the top and the average employee, with regard to financial management and planning. The upper echelon seem to have their ducks lined up (and seem to have some professional guidance from either the plan advisors or personal financial consultants) but the rest are left to figure it out on their own. Granted, most employees do not have large balances, but the lack of encouragement and assurance about the plan is discouraging to me, and I suspect it breeds some (unfounded) suspicion among the ranks that the company gets more benefit from it than they do, although we do have decent plan matching and eligibility requirements.

I am not sure if this is partly due to the industry; retail does tend to include more younger and short-term employees, but the ones that we have that have been here for many years (some decades) deserve better. I believe our recordkeeper does well in sending emails to participants, but more involvement from our company would likely help bolster participation and enthusiasm.

I doubt the C-suite (3-4 people) will ever consider it their responsibility to help the staff meet their retirement goals, and frankly, they are more concerned with keeping the company on firm financial footing, but they would like to be perceived as caring about the staff and offering useful and competitive benefits, so offering materials or resources that help with ‘financial wellness’ might be welcomed, or at least agreed to, if we can get some good direction in that endeavor.

It would be important to get their buy-in on any significant outreach program, as there is a close-knit need to make those decisions at the top. So, I feel my hands are a bit tied, in addition to being a bit overloaded with other responsibilities (most of the accounting for the company and most HR procedures for all 230 employees). So time is a concern.

Hattie Greenan is PSCA’s Director of Research and Communications.

by James Locke

SECURE 3.0?

Recently, several new bipartisan retirement bills have been introduced and several have been gaining traction. Are we seeing the beginnings of a SECURE 3.0 emerging?

IT HAS BEEN NEARLY A YEAR SINCE THE SECURE 2.0 ACT WAS ENACTED. AS THE NAME OF THE BILL SUGGESTS, THAT LAW WAS THE SECOND SIGNIFICANT RETIREMENT SAVINGS POLICY BILL ENACTED IN THE SPAN OF FIVE YEARS.

A year later, while most practitioners and retirement plan sponsors are focused on implementation of the new SECURE 2.0 rules, Congress has quietly been putting forward new bipartisan proposals for consideration in the next round of retirement plan policymaking. We also expect more individual-issue bills to be introduced throughout the remainder of 2024. In sum, these proposals will likely serve as the skeleton for Congress’s next comprehensive retirement package.

Although both SECURE 1.0 and SECURE 2.0 have gone a long way toward helping Americans save for retirement, lawmakers on Capitol Hill are beginning to express interest in cobbling together some retirement proposals into SECURE 3.0 to address some glaring policy gaps that need to be resolved.

AUTOMATIC ENROLLMENT

In July 2023, two senior members of the Senate Health, Education, Labor and Pensions (HELP) Committee—along with their House Education and the Workforce, and Ways and Means Committee, counterparts—introduced the Auto Reenroll Act of 2023 (H.R. 4924/S. 2517). The legislation would amend both ERISA and the Internal Revenue Code (IRC) to permit qualified automatic contribution arrangements (QACAs) and eligible automatic contribution arrangements (EACAs) to automatically reenroll workers back into the retirement plan at least one time every three years.

Many employers automatically enroll their employees in retirement savings plans; however, some employees initially decide to opt out. This bill essentially prompts workers who opt out of these plans to periodically reconsider that choice.

STARTUP CREDIT BOOST FOR MICRO EMPLOYERS

In October 2023, two key members of the House Ways and Means Committee—Reps. Claudia Tenney (R-NY) and Dan Kildee (D-MI)—introduced the Retirement Investment in Small Employers (RISE) Act (H.R. 6007). The legislation would create a new Micro Employer Pension Plan Startup Credit in IRC Section 45E for qualified micro employers. A qualified micro employer is defined as an employer with 10 or fewer employees. The credit amount is 100% of any retirement plan administrative costs up to $2,500 for the first three years after adoption of the retirement plan.

Incentivizing the adoption of retirement plans in small businesses is vital to closing the retirement coverage gap.

While the SECURE Act and SECURE 2.0 modified and enhanced retirement plan startup tax credits for small businesses, they did not amend the formula relied upon to determine the amount an employer may claim in retirement plan startup tax credits. This left the smallest microbusinesses and their employers and their employees unable to take full advantage of the credit. The RISE Act would address this problem and would empower the smallest of employers to offer robust retirement savings plans to their employees.

ERISA MINIMUM AGE PARTICIPATION REQUIREMENT

In November 2023, Sen. Bill Cassidy (R-LA), Ranking Member of the Senate HELP Committee, and Sen. Tim Kaine (D-VA) introduced the Helping Young Americans Save for Retirement Act (S. 3305). The legislation

would lower the minimum participation age ERISAcovered defined contribution (DC) plans from age 21 to age 18.

The legislation also would exempt 18 to 20-year-old employees from testing related to retirement funds that would otherwise increase the cost of administering retirement plans for these employees, directly mirroring the administrative treatment of long-term, parttime employees (LTPTEs).

Nearly half of all workplaces only offer benefits to employees who are age 21 or older.

Expanding access to employees between the ages of 18-21 will allow them to accrue additional retirement savings by allowing them to start saving for retirement earlier.

ROTH IRA ROLLOVERS

ARA has worked steadfastly to encourage lawmakers to introduce legislation allowing retirement savers to roll over any of their Roth IRA savings into a Roth bucket within a workplacebased DC plan. Under current law, workers are prohibited from rolling Roth IRA savings into a designated Roth savings account within a workplace-based retirement plan.

James

Locke is the American Retirement Association’s Director of Federal Government Affairs.

PSCA publishes articles by its members in Insights magazine.

If you have an idea for an article of 1,000 to 3,000 words in length, please contact hgreenan@usaretirement.org

ADVOCACY, EDUCATION, AND INSIGHT FOR AMERICA’S RETIREMENT