We have been talking about “retirement income” for years now – what does that actually mean and what are the options for plan sponsors to consider? by
Hattie Greenan
Self-Directed Brokerage Accounts in Defined Contribution Plans
Considerations for offering a brokerage account to retirement plan participants. by
Robert E. Pike
2025 National Conference April 30-May 2, 2025 Las Vegas, NV
Virtual Investment Summit September 17-18, 2025 More information coming soon.
Upcoming Webcasts:
Retirement Income for Plan Sponsors April 16, 2025
Troubleshooting Common Issues with Retirement Plan Committees May 13, 2025
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An older car without GPS, cameras, and heated seats will still get you to your destination – it may not be as comfortable as a fancy car, but it gets you there. The same is true for retirement plans.
I’M GOING TO SAY IT – THE RETIREMENT PLAN INDUSTRY IT COMPLEX – AND IT SEEMS TO THRIVE ON THIS COMPLEXITY. Exactly why I am not sure – government regulations? Job security for the experts? In this issue of Insights, we show that complexity doesn’t have to be. That yes, there are premium options with all the bells and whistles that are likely to provide more and better results, but if you are a small organization, or a one person benefits department trying to provide what you can with few resources, there are small things you can you do and provide that will still make a big difference for your employees down the road.
In the cover story I try and tackle “retirement income,” (yeah, I don’t know what I was thinking either) and provide an overview of the options you can make available to participants from the simple to complex. Simply, you can allow retirees to keep assets in the plan and allow for monthly installment payments. On the complex end you can add a lifetime income option to your core menu. And there are lots of options in between.
Hannah Cockrum, a member of PSCA’s HSA committee discussed how sometimes the thought of offering a fully developed HSA program to employees can be a barrier to employers offering anything at all – so she wrote an article for this issue showing where employers can start with a simple, barebones offering to what a “Cadillac plan” can look like for employers who want to provide a little bit more.
If you are interested in getting started with offering a NQDC plan for key employees, Erik Speed with PSCA’s NQDC committee gives you ten steps to consider, detailing the basics as well as the extras you can offer if you so choose.
Getting started with anything that is technical and complex can be overwhelming – sometimes to the point of just not moving forward. If we take a step back and look at the basics and break it
down into the small steps, it can be a bit easier to figure out where to start. You can always add the bells and whistles later. It is like we tell participants – it doesn’t have to be a lot of money to make a big difference down the road. The same is true for you – do what you can with what you have and it will make a big difference.
Hattie Greenan is the Director of Research and Communications for PSCA.
by Will Hanson
Get Ready for an Amazing PSCA National Conference!
Later this month we are heading to Las Vegas for the premiere retirement industry conference of the year.
LOOKING FOR THE HOTTEST RETIREMENT INDUSTRY EVENT OF 2025? Look no further than the PSCA National Conference happening April 30 to May 2. This year’s lineup is packed with awesome workshops and general sessions that’ll keep you in the know on everything retirement plans.
CAN’T-MISS GENERAL SESSIONS
Kicking things off is the always popular “Washington Update” where I’ll be dishing out the latest scoop on what’s happening on Capitol Hill. With a major tax bill expected to move through Congress in 2025, I’ll break down what it means for your retirement plans. Plus, everyone gets to jump in on the “Builda-Bill” activity where you can share your own ideas for future retirement legislation. How cool is that?
Don’t sleep on “Trends in Retirement Plan Design” with Hattie Greenan, PSCA’s research guru. She’ll walk you through what’s hot and what’s not in plan design, giving you a leg up on where the industry is headed.
And Thursday’s “Balancing Your Wealth” session tackles how financial and mental wellness go hand-in-hand – something we’re all talking about these days. It’s all about helping your employees thrive both financially and mentally.
WHAT’S HOT THIS YEAR
The session lineup shows what’s really on everyone’s mind:
• Retirement Security: A whopping 12 sessions tackle how to help employees actually retire someday!
• Getting Through to Employees: Six sessions on making those communications stick (no more ignored emails!).
• Staying Out of Trouble:
IF YOU’RE RESPONSIBLE FOR A RETIREMENT PLAN AND WANT TO STAY AHEAD OF THE CURVE, THIS IS YOUR EVENT. YOU’LL WALK AWAY WITH PRACTICAL IDEAS YOU CAN USE RIGHT AWAY, INSIDER KNOWLEDGE ON WHAT’S COMING DOWN THE REGULATORY PIKE, AND CONNECTIONS WITH PEOPLE WHO GET WHAT YOU’RE DEALING WITH.
WORKSHOPS THAT ACTUALLY HELP
With 19 different workshops spread across three days, you can totally customize your conference experience:
Making Your Plan Work for Everyone
Check out “Inclusivity: Assessing Your Plan’s Matching Formula” with Eileen Allen from Cummins. She’ll show you how to make sure your plan is working for all your employees, not just the high earners. It’s equity in action!
Smoothing Out the Admin Headaches
Tired of those payroll-vs-retirement-plan nightmares? Sharon Kacsits has your back in “Payroll Synergy,” where she’ll share real-world tips to get those systems talking to each other. Say goodbye to those data transfer headaches!
Dealing with Mergers Without the Stress
If your company’s going through changes, don’t miss Ira Finn’s session on “Seamless Transitions.” Mergers and acquisitions are tricky enough without retirement plan drama, and Ira’s got the roadmap to make it work.
Five compliance-focused sessions to keep you on the right side of those regulations
• Smarter Investing: Three deep dives into investment options that actually work.
• Ethics: Need those two ethics credits for your CPSP continuing education by the end of the year? Get both at the conference!
CONNECT WITH YOUR PEOPLE
Let’s be real – some of the best conference moments happen between sessions. Grab coffee with fellow plan sponsors, swap war stories, and find out how others solved the same problems you’re facing. Those hallway conversations? Pure gold.
WHY YOU SHOULD BE THERE
If you’re responsible for a retirement plan and want to stay ahead of the curve, this is your event. You’ll walk away with practical ideas you can use right away, insider knowledge on what’s coming down the regulatory pike, and connections with people who get what you’re dealing with. Whether you’re obsessing over compliance, trying to make your plan more inclusive, streamlining operations, or figuring out how to get employees to actually engage with their benefits, the 2025
PSCA National Conference has something that’ll make your job easier. See you there!
Will Hansen is the Executive Director for Plan Sponsor Council of America.
Sean
by Diane Garwood
PSCA Events and Resources for 2025
From in-person conferences to certificate program to webinars, PSCA has the educational resources you need this year.
DEAR MEMBERS OF THE PLAN SPONSOR COUNCIL OF AMERICA,
As we embark on a new year, I’m excited about all there is to look forward to in 2025. There are some really exciting things in store for all of us.
PSCA’s National Conference is coming up later this month, and the national conference planning committee worked hard for months to create a great program – Las Vegas promises to be an amazing conference. If you haven’t registered, there’s still time. You don’t want to miss out on the opportunity to socialize with your fellow plan sponsors and learn from some knowledgeable speakers that will keep you informed on the retirement plan landscape – what’s new, what’s changing, and maybe something you want to learn more about.
Speaking of what you want to learn more about – have you seen the information about the Retirement Income Certificate? I recently spoke to a group of women about planning for their retirement and realized I have a lot to learn. I’m so excited to embark on this journey of becoming more knowledgeable about a topic that can help all our plan participants. When you have some time, please take some time to look into starting this journey.
EVERYTHING WE DO HERE AT PSCA IS TO HELP YOU BE A BETTER PLAN SPONSOR. WE HAVE BIG JOBS IN AN EVERCHANGING ENVIRONMENT, AND WE SUPPORT PLAN PARTICIPANTS WHO HAVE THEIR OWN BIG JOBS.
Maybe your schedule doesn’t allow time right now for travel to conferences or a study-at-your-ownpace certificate program. Maybe a webinar will fit into your schedule more easily. There are lots of sessions scheduled for the year, including “Recession Proofing Retirement Plans” or “Navigating the New Retirement Plan Landscape” just to name a couple. Make sure to visit the website frequently to see what’s available. I think the part I am most grateful for is that if you miss the webinar, you can revisit it at a later date – on your schedule.
Surveys are out and more will be coming out soon. The more information gathered, the better the resulting information. We need you to all take the time to complete these surveys. It’s the best way to share what we do and learn what others are doing. I hope you’ll take some time for this.
Everything we do here at PSCA is to help you be a better plan sponsor. We have big jobs in an everchanging environment, and we support plan participants who have their own big jobs. What we do to help them plan for their future is so important. Let’s keep working with that goal in mind.
Have a great spring season – no matter where you are – and we hope to see you all soon in warmer weather.
Sincerely,
Warm regards, Diane Garwood President Plan Sponsor Council of America (PSCA)
Diane Garwood is the Vice President of Human Resources for Horizon Bank.
by Hattie Greenan
What is Retirement Income?
We have been talking
about “retirement income” for years now – what does that actually mean and what are the options for plan sponsors to consider?
RETIREMENT INCOME IS THE CURRENT INDUSTRY BUZZWORD. LIKE AUTOMATIC ENROLLMENT, ROTH, AND TARGET-DATE FUNDS
BEFORE IT – IT’S THE NEW THING THAT EVERYONE IS TALKING ABOUT AND NO ONE IS DOING, YET.
Part of the confusion around retirement income is one that is common in our industry – multiple buzzwords that mean the same or similar things and a handful of acronyms that you can toss in the air and scramble. When we say “retirement income,” what do we mean? Is it the same as lifetime income? Are we only talking about annuities? What is an RIA or a FIA or a GLWB or any of the other acronyms floating around in this space? This article will provide a general overview of the types of options out there, from the simple to the more complex, without getting into the weeds (for that, attend PSCA’s National Conference in Las Vegas next month).
Background
In the early days of 401(k) plans, more than 50 years ago, after basic design features were worked out, the focus was on participation – how can get employees to save in the plan. Methods to encourage saving included focus on providing a match (free money!), to education (what exactly is a 401(k) plan anyway), and eventually to automatic enrollment (let’s put them in and then let them opt-out if they don’t want to). Once employees were in the plan, we focused on increasing those savings rates and auto escalation was born. New investment options were created to help diversify and increase account portfolios over time with little work on the participant’s part and target date funds (TDFs) became commonplace.
Now, 50 years later, 401(k) s are standard and most employees know what they are, the question has moved on to now what? Once employees have accumulated assets in their retirement accounts and then retire, what is the best way for them to use those savings to live comfortably in retirement?
Participants have options – they can take all the money out as a lump and manage it themselves or roll it over to an IRA and draw it down as they wish over time (regulations permitting). If the employer permits them to, they can leave the money in the plan and take monthly, yearly, or periodic installment payments, or they can use their funds to purchase annuities outside of the plan.
Retirement Distribution Options Offered - Plan Size by Number of Participants
All of these methods require employees to plan ahead for an uncertain amount of time and risk running out of money in retirement if they don’t plan appropriately. This planning requires a certain amount of financial sophistication, or access to a trusted financial advisor, and though some participants will be able to do so, the majority will not. There is no guarantee that their savings will meet their financial needs for the rest of their lives.
Annuities have been around forever, and retirees have the option of using all or part of their account balances to purchase one if they choose, and those vehicles will
Source: PSCA's 67th Annual Survey
provide a specified income in retirement, depending on the arrangement purchased. These are purchased outside of the plan, at retail pricing, and retirees are on their own to select appropriate options.
As the availability of pensions declined, the defined contribution industry turned its focus to how they could help retirees receive guaranteed monthly income within the retirement plan framework and not leave retirees to fend for themselves once they leave the workforce. There are currently a number of options and there continues to be innovation in this space. An overview of current options, and the regulatory framework that shapes them, follows.
Regulatory Framework
One of the barriers to adoption of retirement income products was plan sponsor uncertainty about regulations and fiduciary risk
in selecting these products. In 2014, the DOL issued a key letter to the Treasury Department approving the use of lifetime income annuity contracts as part of a QDIA when used as part of a TDF, but that was really the only guidance on the issue until the SECURE Acts were implemented. The SECURE Act of 2019 included three provisions aimed at increasing access to retirement income options. The first is a requirement to include an illustration of account balances as a lifetime income stream to participants at least once a year. This provision was introduced more than ten years ago –the intention of which was to show participants what they can expect their current account balances to provide as a monthly paycheck in retirement so they have a realistic picture of their savings and can adjust as needed. The second provision
creates portability by permitting in-service distributions of lifetime income products when the plan changes lifetime income programs. Portability of lifetime income products was one of the perceived disadvantages and this provision aimed to help address that barrier. The third provision provides fiduciaries with a safe harbor in selecting a lifetime income provider – addressing the concerns of fiduciary liability often cited by plan sponsors as a barrier to participation.
Options
As with many things, options for providing a monthly income stream to retirees range from simplistic with little employer involvement, to more sophisticated in-plan products with employer oversight. The more basic options for providing a monthly income stream include non-guaranteed options –options where participants can elect installment payments from their retirement account as long as the assets last, or some type of managed payout approach through a managed account or a TDF. Guaranteed options – “lifetime income” options – provide a guaranteed monthly payment for life and are backed by an underlying insurer (annuity).
In a Question of the Week (QOTW) last fall, PSCA asked plan sponsors which methods for providing retirement income to participants they are most interested in considering. Only five percent said they are not interested in any options, but the non-guaranteed options such as systematic withdrawals and target date funds with an income planning feature have the most interest while the guaranteed options have less, but growing, interest. Nearly 40 percent of respondents stated they are interested in target-date funds with an embedded annuity feature and 28 percent stated they are interested in in-plan
Retirement Income Options Plan Sponsors are Interested in Pursuing
Income Option Percentage of Plans
Source: PSCA QOTW, September 2024
annuity options. An overview of these options follow.
Systematic Withdrawals
Many plans allow employees to draw down a specified amount of their account balance over time, setting up an income stream that meets their needs. This approach is relatively easy and can often be done through the plan (if the plan allows installment payments), or through an embedded
product/fund. If your plan does not allow for periodic or installment payments, it is an easy option to consider. There may or may not be fees associated with installment payments, but the main downside to this approach is that it is not guaranteed income, and the participant is at risk of outliving their savings. This approach offers a lot of flexibility for retirees, but also requires some sophistication in planning
out how they will use their savings to provide enough income to last the rest of their lives.
Managed Accounts/Managed Payouts
Half of plans already offer a managed account option for participants (from PSCA’s 67th Annual Survey) to help participants customize their accumulation path if they choose. Adding an income planning or payout feature/
fund could be an easy way to offer a customized approach to decumulation. Managed withdrawal funds/ managed payout funds (there are a lot of different names for similar products here) typically involve funds operated by professional investment managers who determine an optimal payout strategy based on the individual’s retirement goals, life expectancy, and market conditions. The
in products. Generally speaking, “lifetime income” is referring to products that provide gu aranteed income in retirement and are backed by an annuity in some manner. Lifetime income is a type of retirement income product, but not all retirement income products are “lifetime income” products.
More and more lifetime income products are coming to market, and for the most part, no two products are the same. It is hard to compare products because its hard
to get an apples-to-apples comparison. Because the products all operate so differently, its important understand how each product works, and the fees associated, to make prudent informed decisions.
For this article, I am not going to attempt to delve into all of the nuances in all of the products but provide the basics. Guaranteed products, by definition, have some type of underlying insurance product that guarantees income in the
future. These underlying insurance products can vary greatly – there can be a variable annuity that has potential for growth but exposure to market risk, fixed annuities with a fixed income rate and no market risk or growth potential, or some combination that provides both market growth and protection from market risk. The newer products seem to be a combination of underlying insurance products that combine to allow for growth of
assets, protection against downturns, and access to cash by participants when or if the need arises. When considering products to implement, consider the how they work, and the risks and fees associated to balance that with the benefits provided to employees.
The key benefit of these products is their ability to offer retirees peace of mind that they won’t outlive their savings. These products are complicated – and complicated to explain to
Retirement Income for Plan Sponsors Certificate Program
RECOGNIZING THE GROWING TREND IN THE INDUSTRY TOWARDS PROVIDING RETIREMENT INCOME SOLUTIONS for participants and acknowledging growing interest from plan sponsors, but a lack of comprehensive resources for them to consider their options, PSCA created an online Retirement Income Certification course.
The certificate program covers essential language and concepts to effectively communicate about various retirement income solutions. Participants will learn about different types of solutions, the risks involved, and the trade-offs of each option. In addition, the course distinguishes between settlor and fiduciary responsibilities in evaluating plan design, providing a framework for the prudent selection, monitoring, and replacement of retirement income solutions.
By the end of the course, plan sponsors will be wellprepared to select and manage retirement income solutions that align with participant needs and regulatory requirements. Below is an outline of the online course that takes approximately 2-3 hours to complete.
Module 1: Retirement Income’s Role in Shaping Plan Outcomes
• Recognize the need to retirement income solutions
• Identify the driving forces behind demand for retirement income solutions
• Understand the SECURE Act of 2019 safe harbor.
Module 2: Today’s Retirement Income
Solutions
• Learn the difference between retirement income solutions and lifetime income solutions.
• Learn the basics of annuities
• Understand the tradeoffs associated with the different types of income solutions
Module
3: Prudent Process for Selection of Retirement Income Solutions
• Distinguish settlor from fiduciary decisions when evaluating plan design options
• Develop a framework for prudent selection, monitoring, and replacement of retirement income solutions
• Identify key decisions necessary to select a retirement income solution
employees. How you are going to educate employees about what these products are and how they operate is something to consider in selecting an option.
A ApproachComprehensive to Retirement Income
Participants need help in understanding the best way to access their retirement savings to provide income over the rest of their nonworking years. Plan sponsors have a variety of options to
consider from simply allowing retirees to retain assets in the plan and set up monthly installment payments, to target date funds that have an income generating glide path, to managed accounts with managed drawdown solutions, to the newer and more complex guaranteed lifetime income options. Due to their complexity and their relative newness to the retirement plan party, few plan sponsor are currently offering these guaranteed options in the
Module 4: Implementing Retirement Income solutions
• Identify the team required for implementing a retirement income solution
• Developing a communication plan
• Working with partners to successfully implement retirement income solutions
Module 5: Additional Resources
• Downloadable materials provided for future reference.
Participants who successfully complete the certification can earn four credits of CE towards the CPSP designation, as well as SHRM and HCRI. More information about the program is available at https://www.psca.org/RIC. For those that prefer in-person learning, there will be a retirement income bootcamp held during PSCA’s National Conference, April 30-May 2 in Las Vegas. Attendees can earn the certificate after attending the bootcamp. More information is available at: www.pscanational.org
plan so far, though interest continues to grow. Plan sponsors tend to be more conservative in adopting new features, as they take their fiduciary responsibility to their employees seriously, and they tend to be risk adverse. As these lifetime income products continue to evolve and become more mainstream, they are likely to be much more widely available and offered.
Plan sponsors can offer multiple retirement income approaches to employees
to choose from – offering employees choice offers them the flexibility to determine what will best meet their needs. Providing clear educational resources about the benefits and risks of the options available to them, and access to financial advice and advisors, can help ensure employees are making informed decisions for their futures.
Hattie Greenan is the Director of Research and Communications for PSCA.
The Retirement Income Certificate is offered for free to plan sponsors due to the generous sponsorship of:
by Robert E. Pike
A “Self-Directed Brokerage Account” (SDBA) is a special type of brokerage account that a defined contribution plan like a 401(k) or 403(b) plan may adopt for the use of its participants to direct their investments toward publicly traded securities available on the brokerage platform selected for the plan. A SDBA feature is also commonly referred to as a “brokerage window” or an “Individually Directed Account” (IDA).
OVERVIEW Benefits
The primary benefit of this account is that it enables the investor (plan participant) to select their investments and customize their portfolio to meet their unique goals and preferences from a nearly unlimited set of investments (separate and apart from the plan provided menu of core investment options, known as “Designated Investment Alternatives” (DIA) –typically mutual funds, exchange-traded funds (ETF), or Collective Investment Trusts (CIT)).
Another frequently cited benefit is the ability to conform investor preferences into a portfolio (i.e. ESG or sustainability, religious convictions, climate-aware investment preferences, etc.).
In addition, plan participants with deep subject matter expertise in a particular area can leverage their specialized knowledge by selecting investments most suited to their professional or other skill set in order to pursue their overall retirement goals.
Lastly, a SDBA can be utilized when working with a thirdparty investment professional, such as a Registered Investment Advisor (RIA) firm. These firms will typically construct a variety of “model” portfolios which can be implemented, monitored, and updated as needed based on the model selected by the participant.
Background & Growth
In 1978, reforms adopted in the IRS code led to the development of the 401(k) plan. The first plan was implemented in 1980 by Ted Benna of the Johnson Companies. Brokerage windows were introduced shortly thereafter.
For mass market providers, Charles Schwab and Fidelity Investments were early adopters, launching their “Personal Choice Retirement Account” (PCRA) and “Brokerage Link” respectively in 1994. Schwab is now the market leader by asset size in this space, followed by Fidelity.
Regulatory Provisions
Surprisingly, the first guidance on what constitutes a brokerage window was not issued until 2010. The Department of Labor (DOL) directed certain disclosures under ERISA Section 404(a) which defined a DIA and defined a brokerage window by EXCLUDING it from the definition of a DIA, stating that a brokerage window “enables participants and beneficiaries to select investments beyond those designated by the plan”.
Shortly thereafter, Field Assistance Bulletin (FAB) 2012-02 was issued, which caused confusion as it raised the issue of the potential need for “affirmative obligation” to treat an investment obtained through a brokerage window as a DIA if certain thresholds were met (one percent of all participants choosing the same non-DIA investment, for instance). Very quickly, the DOL reversed course by issuing FAB 2012-02R.
Since then, the only published guidance has been a December 2021 report to the DOL issued by the Advisory Council on Employee Welfare and Pension Benefit Plans (“Understanding Brokerage Windows in SelfDirected Retirement Plans”).
The gist of the report was that existing regulations were working fine.
The only area of concern noted was regarding plans that offered ONLY a brokerage window. These plans have no DIA menu and offer only a SDBA for participant
investments. They are typically used by small plans because they cost less than fully bundled plans. The report noted that inexperienced investors may have a “suboptimal experience,” while further noting that they may not have access to features found in a typical institutional quality plan like loans, autoenrollment, and auto deferral increases.
Current Utilization
According to PSCA’s most recent survey, 26 percent of plans have a brokerage window, with higher adoption among larger plans.
Percentage of Plans That Offer a Brokerage Window
Hold Harmless Agreements
For the participant, SDBA providers have developed standard but extensive risk disclosures/agreements that a participant must review and sign before a SDBA is opened in their name.
Some plan sponsors find this agreement to be sufficient as a “hold harmless” defense, while others utilize a separate “acknowledgement” of the special risks inherent in selfmanagement of a brokerage account that a participant is required to sign (a “hold harmless” letter). Overall, the idea is that a special level of care must be exercised and is assumed by any participant who chooses to select their own investments/strategy.
Restricted Investment Lists
Plan sponsors whose companies (consulting, investment banking etc.) provide advice to publicly traded companies will typically restrict their employees from investing in securities of their clients via a “Restricted List.” Most SDBA platforms have well-established methods for complying with these restrictions, so be sure to examine these closely if your company has a “Restricted List” for employees.
CONSIDERATIONS FOR ILLIQUID AND NEW ASSET CLASSES IN THE SDBA
Finally, there has been considerable talk and interest around adding illiquid asset classes like Private Equity (PE) and Private Credit (PC) to 401(k) plans as investment alternatives, as well as “hedge funds.” Similarly, relatively new asset classes like “cryptocurrencies” or “digital assets” etc. have also generated interest.
At its core, the reason for adding these new illiquid assets is to generate potentially higher returns for participants. As an example, the long-term historical return premium for PE vs. small, mid, or large-cap US stocks ranges from +3 to +6 percent (depending on the index provider). The case can also be made that PE serves as an effective equity diversifier.
Regulations Around Private Equity
Currently, direct investments in PE are only available to “Accredited Investors” (AI) or “Qualified Purchasers” (QP) as defined by the SEC. The former must have an investment portfolio worth $1 million or more AND an annual income of $200,000 or more for the last two tax years. The latter must have an investment portfolio of more than $5,000,000. Both are considered to have the financial acumen needed to invest in and bear the risk of complex and unregulated investments. Clearly very few plan participants would meet these high thresholds, and most would be considered relatively unsophisticated investors, so the current discussion around PE is in effect an attempt to figure out how to “democratize” access to PE by small investors. The practical solution is to offer these
“alternative strategies” as part of a managed investment strategy, such as a CIT or Target Date Fund (TDF).
Interval Funds
Note that the investment industry for several years has been offering illiquid investments (PE, PC, and private real estate) via a special type of mutual fund called an “interval fund.” These funds do not offer daily liquidity. Instead, they generally offer only quarterly liquidity via a “tender offer” structure. The tender offer is used to “gate” redemptions to a manageable level in the event of mass redemptions flooding the fund sponsor at an inopportune time.
Even though many interval funds now have minimums as low as $25,000 to invest, (making it eminently reasonable to include PE in an overall asset allocation), SDBAs do not permit the use of this vehicle due to its lack of daily liquidity and onerous documentation process.
Potential Solutions
A natural solution for the inclusion of PE in a 401(k) plan is via a TDF. Just as some ETF providers now include annuity (lifetime income) allocations within their TDF series, it is possible to extend the equity allocations beyond public markets to private markets with direct subscriptions by the TDF to the PE fund sponsor. TDF managers have the research capability to select appropriate PE investments, conduct
ongoing due diligence, and make appropriate disclosures to fund investors. Similarly, sophisticated investment managers (including ERISA 3(38) investment managers retained by the plan) can manage or advise on a CIT utilized by a plan. Large plans commonly can access these customized vehicles per their status as “Qualified Institutional Buyers” (QIB) ($100 million in plan assets) or as a “Qualified Purchaser” (QP) ($25 million in assets). CITs in general have less of a regulatory burden than mutual funds and ETFs and may be better positioned to include direct PE investments as part of their strategies.
Special Requests
Finally, plan sponsors must also wrestle with special requests from participants to include newer “flavor of the month” investments (cryptocurrencies come to mind). Having written guidelines in the plan’s Investment Policy Statement (IPS) can help to provide firm guidance for these requests.
EVALUATING THE SDBA
Each quarter, Schwab publishes a comprehensive review and analysis (“The Schwab Self-Directed Brokerage Account Indicators”) of all PCRAs on their platform, which can be found here. (https:// workplacefinancialservices. schwab.com/resourcesevents/sdba-indicators)
Schwab’s latest report (Q3, 2024 report) revealed some notable metrics. Individual stocks (equities) made up the largest investment type at 34.4 percent, with mutual funds second at 27.9 percent. ETFs were the third largest at 25.7 percent but have seen the largest increase over the last year (consistent with broad market experience of the rise of ETFs vs. mutual funds). Cash stood at 7.4 percent and Fixed Income at 4.7 percent. (Note that this is not an asset allocation summary as both mutual funds and ETFs can hold any manner of equity, fixed income/other security type).
Similarly, the top mutual fund holdings are index funds, reflecting again the overall market direction and preferences of investors.
Source: The Schwab Self-Directed Brokerage Account Indicators, Q3 2024
Source: The Schwab Self-Directed Brokerage Account Indicators, Q3 2024
SDBAs provide DC plan participants with significant flexibility in customizing their investment portfolios. There is an added level of effort involved for both the plan sponsor and participant to select the plan trading menu and implement the investment strategy. The plan sponsor’s fiduciary standard of care must be considered in all actions. With proper due diligence and good records, a plan sponsor can offer a robust SDBA that enhances the participant experience.
Robert E. “Emery” Pike, CFA, AIF, is a member of PSCA’s Investment Committee and is a Senior Advisor at Sheets Smith Wealth Management Inc. John Doyle, Senior Vice President of Capital Group and a member PSCA’s Investment committee contributed to this article.
NQDC
by Erik Speed
Nonqualified Deferred Compensation Plans: Where to Start
Ten steps to design and deliver a quality benefit to attract and retain key talent.
AS A CORPORATE LEADER, AND ESPECIALLY FOR AN HR MANAGER, ONE OF YOUR KEY RESPONSIBILITIES IS DESIGNING COMPENSATION STRATEGIES THAT ATTRACT, RETAIN, AND REWARD TOP TALENT.
A nonqualified deferred compensation (NQDC) plan is an excellent tool for providing executives and highly compensated employees with additional financial security while simultaneously aligning their interests with the company’s long-term success.
However, it’s not unusual for those in HR roles, particularly at smaller companies, to be unfamiliar with nonqualified plans, and, frankly, a little intimidated by them.
Unlike qualified plans (such as 401(k) plans), NQDC plans offer greater flexibility in contributions, funding, and distribution structures. However, they also come with unique legal requirements, most particularly under Section 409A of the Internal Revenue Code (IRC).
This article will attempt to demystify NQDC plans and provide a step-by-step guide for getting started on evaluating and implementing a plan successfully.
STEP 1: UNDERSTAND THE BASICS
A NQDC plan is a plan
designed to supplement your 401(k) plan. Key characteristics of a NQDC plan are:
• Eligibility is limited to a select group of management or highly paid employees
• Employees can elect to defer receipt of up to 100 percent of their eligible compensation (i.e., no pretax maximums) to a later date, thereby delaying federal and state income taxation until a future date.
• No 5500 reporting or nondiscrimination testing
• Participant balances are subject to the claims of the general creditors of the company in the event of the company’s bankruptcy or insolvency.
STEP 2: OUTLINE YOUR OBJECTIVES
Before implementing an NQDC plan, it’s crucial to define the goals behind it. Common reasons companies establish such plans include:
• Maintaining a Competitive Compensation & Benefits Program to Attract and Retain Key Employees:
High-level executives often look for companies that offer competitive compensation structures beyond base salary and bonuses.
• Providing a Tax-Planning Tool and Enhancing Executive Compensation: By deferring receipt of their compensation until a later date, participants can manage their current federal and state tax obligations to their own personal financial situation. Providing this tool enhances the value of your company’s existing compensation strategy without increasing your cash outlay.
• Encouraging Long-Term Commitment: As noted previously, an executive that defers compensation puts that compensation at risk in the event of the company’s bankruptcy, so they have a vested interest in the long-term financial stability and success of the company. Also, many plans include customized vesting schedules or
performance-based incentives that encourage executives to stay with the company.
• Restoring Company Match: IRS rules limit the amount of compensation that can be eligible for employer matching contributions in the 401(k). NQDC plans are frequently used to extend the 401(k)-matching formula to an executive’s full compensation amount.
• Targeted Company Contributions: Because nonqualified plans are exempt from ERISA’s (Employee Retirement Income Security Act) coverage requirements, the plans can be used to make special, targeted employer contributions to specific employees or groups of employees for retention or recruitment or incentive purposes.
Once the objectives are clear, the next steps are socializing the plan with leadership and talking to someone that can help you get started.
STEP 3: SOLICIT MANAGEMENT BUY-IN
Ultimately, implementation of an NQDC plan requires board approval as it shifts current compensation expenses to the future, and the board will need to assess the impact on cash flow and financial statements. Reviewing project scope and obtaining pre-approval from senior leadership helps ensure a smooth and timely plan rollout.
STEP 4: ENGAGE AN EXPERT
Engaging a consultant that specializes in NQDC plans can provide significant benefits, ensuring that your plan is strategically designed, compliant, and effectively and efficiently administered. You can also inquire of your current 401(k) providers - plan recordkeeper, investment manager, attorney –as to what level of NQDC support they can provide. Keep in mind, however, that while 401(k) and NQDC plans share some basic fundamentals, there are specific design, compliance, funding, and servicing requirements of an NQDC plan that may merit a specialist.
STEP 5: DESIGN THE PLAN
Designing an NQDC plan requires making key decisions about deferrals, employer contributions and vesting, and distributions.
Determine Your Eligible Population
The IRS provides no “brightline test” for determining
eligibility. Working with your plan partners (NQDC consultant, plan recordkeeper, or benefits counsel), along with your internal compensation group will help you determine an appropriate eligibility metric. Frequently this can be:
• Compensation level (e.g., annual salary of $200,000 or more, or total compensation of $260,000 or more)
• Title/Position (e.g., VP and above, or payroll grade six or higher)
• Fixed percentage of workforce (e.g., top 10 percent of employees based on total compensation, or 130 percent of 401(k) annual highly compensated employee definition)
• A combination of criteria
Employee Deferrals
Participants must elect to defer compensation before the beginning of the year in which the income will be earned. Common deferral options include base salary, bonus pay, commissions, and equity compensation (RSUs).
Employer Contributions & Vesting Schedules
Employers can also offer matching or discretionary contributions. Employer contributions can take the form of matching contributions, similar in structure to those in 401(k) plans, but with no IRS-imposed limits, or they may be customized contributions specific to company retention, recruitment, or incentive needs.
You can set vesting rules based on company retention strategies and may customize them based on circumstances.
Distribution Triggers
Section 409A restricts when employees can receive their deferred compensation. Permissible distribution triggers include:
• Separation from service (retirement or termination)
• A pre-determined date (e.g., on January 1, 2030)
• Death or disability
• Change in company ownership
• Unforeseeable emergency (as defined by IRS regulations)
Part of the design process will be to evaluate which distribution triggers you wish to incorporate into the plan, as well as the payment methods to be offered (e.g., lump sum or annual installments).
Participants must make a “distribution election” concurrent with their deferral election and once elected, distribution schedules may only be changed if they meet specific Section 409A change requirements.
STEP 6: DRAFTING THE PLAN DOCUMENT
The NQDC plan document serves as the official agreement outlining the plan’s terms and conditions. It should include:
• Eligibility (although determination of specific criteria is best omitted from the plan document and instead left to the discretion of the
Committee)
• Deferral options
• Employer contributions and vesting schedule
• Distribution rules
• Funding arrangements
• Plan termination conditions
• Legal and tax provisions
Engaging legal experts to draft or review the document is highly recommended to avoid compliance risks. An NQDC consultant or plan recordkeeper should be able to provide this support or provide you with a referral.
STEP 7: DETERMINE THE FUNDING APPROACH
NQDC plans are technically unfunded, however, most companies choose to set aside assets which informally cover future obligations. The most common way they do this is through a rabbi trust. A rabbi trust is a grantor trust that segregates and earmarks assets for future payouts. However, despite being segregated, funds in a rabbi trust remain subject to creditors’ claims in case of the company’s bankruptcy.
Trust assets are either invested in mutuals funds or Corporate-Owned Life Insurance (COLI). Each funding method has pros and cons, so consulting a NQDC consultant or financial expert is advisable.
STEP 8: CHOOSE A PLAN RECORDKEEPER
Choosing the right recordkeeper for your nonqualified deferred
compensation plan (NQDCP) is critical to ensuring accurate administration, compliance, and a seamless participant experience. A NQDC consultant or benefits consulting firm can help manage the selection process – following are a few key factors to evaluate when selecting a recordkeeper.
Experience and Expertise in NQDC Plans
Since NQDCPs are subject to specific regulations, it’s important to choose a recordkeeper with:
Proven expertise in nonqualified plans
A strong track record of compliance and administration
Experience with companies of similar size and industry
Ask:
• How many NQDC plans do they currently administer?
• Do they specialize in nonqualified plans, or is it a secondary service?
• Will they administer just the NQDC plan, or must they also administer the 401(k) plan?
Technology and System Capabilities
A user-friendly, secure, and efficient platform is essential for both HR administrators and plan participants: Request a demo of their platform
Ask:
• Is their platform cloudbased or on-premises? Proprietary or leased?
NQ-specific or capable of handling both 401(k) and NQDC?
Participant Experience & Communication
Since executives rely on NQDC plans for tax-efficient savings, the recordkeeper should provide:
Personalized account dashboards with clear deferral and payout options.
Frequently accessed data points should be prominently displayed and easy to access. Bespoke customer support for plan participants.
Ask:
• Are participant calls fielded by call center representatives or the operations team that handles the plan?
• What tools and resources do they provide for participants?
• Do they offer one-on-one education or plan support?
Service & Support for HR Teams
You need a recordkeeper that reduces administrative burden on company staff by handling day-to-day plan management. Look for:
Dedicated account management with a service team responsive to company inquiries
Custom reporting for HR and finance teams
Ask:
• Will we have a dedicated account manager?
• How quickly do they respond to HR inquiries?
Cost
NQDC recordkeeping fees can vary based on services, plan size, and funding strategy.
Ask:
• What are the total costs of administration?
• Are there additional fees for services like customized communications or special reporting?
Finally, a recordkeeper’s industry reputation and client feedback can provide valuable insights. While references can be valuable, they are also selfselected. Be sure to ask related professionals (attorneys, NQDC consultants, investment advisors and trust providers) what their experience with recordkeepers has been.
STEP 9: COMMUNICATE AND IMPLEMENT THE PLAN
Once the plan is designed and documented, the next step is raising awareness and ensuring employees understand this new benefit and their options. HR should collaborate with legal, finance, and benefits administration teams to ensure a seamless rollout. Key actions include:
• Developing clear communication materials
• Conducting employee education sessions
• Providing detailed enrollment instructions and due dates
Because your new NQDC plan is available to a limited
number of highly paid or management employees, one-on-one meetings are often the most effective and appreciated way of communicating plan benefits. Your new plan recordkeeper and/or NQDC consultant will usually coordinate education and enrollment process.
STEP 10: FILE TOP-HAT EXEMPTION LETTER
Within 120 days of the NQDC plan’s effective date, complete the brief, one-time, online filing at the Department of Labor’s Online Filing System. Doing so exempts the NQDC plan from ERISA’s annual reporting requirements.
Conclusion
Implementing a nonqualified deferred compensation plan can provide significant benefits for both employers and employees, positioning the company to be more competitive in the market for executive talent. However, plan success is dependent upon proper plan design, legal compliance, and effective administration. By following the steps outlined in this article, HR professionals can create a valuable executive benefit that supports long-term retention and financial planning goals. Knowing what and who to ask is crucial to avoiding pitfalls and enabling plan success.
Erik Speed is an Associate Principal with Mullin Barens Sanford Financial and Insurance Services LLC and a member of PSCA’s NQDC committee.
by Shannon Edwards
The Impact of Changing Eligibility Requirements on Retirement Plans
SECURE and SECURE 2.0 aimed to increase access to retirement plans by allowing long-term part-time employees to participate in the plan – plan sponsors have three options to consider in complying with these new rules.
THE SECURE ACT (SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT ACT) AND ITS SUBSEQUENT ENHANCEMENT, SECURE 2.0, INTRODUCED SIGNIFICANT CHANGES TO RETIREMENT PLAN ELIGIBILITY, AND INTRODUCED A NEW CLASSIFICATION OF PARTICIPANT TO 401(K) PLANS.
It also introduced a new level of complexity to an already confusing set of rules which was followed by guidance from the IRS that further complicated the new rules. By now you are already familiar with the term Long Term Part Time Employee (LTPTE). You have also likely determined how you will address the new rules and attempt to streamline your compliance practice.
Compliance administrators and employers must navigate these new rules carefully to ensure compliance while also optimizing plan design to meet the needs and goals of the plan sponsors. Under the original SECURE Act, employers sponsoring 401(k) plans were required to allow LTPT employees to participate if they had completed at least three consecutive years of service with at least 500 hours
of service per year. SECURE 2.0 has since reduced the three-year requirement to two years, further expanding access to retirement benefits for part-time workers. The Act also ensures that once eligible, these employees must be allowed to make elective deferrals into the plan, though employer contributions remain at the discretion of the employer.
LTPTE VS. EARLY ELIGIBILITY FOR ALL
The LTPTE rules as updated by SECURE 2.0 created a situation where part-time employees who work very few hours can become eligible to make 401(k) contributions to the plan. However, the IRS’ interpretation of the new rules said that those who become eligible under these rules are subject to less stringent vesting rules as long as they
participate in that plan. The IRS also said that safe harbor plans couldn’t simply allow everyone to make 401(k) contributions sooner rather than later and keep the TopHeavy Exemption.
Therefore, to avoid having a plan be subject to the LTPTE rules and the complexity they add, one crucial decision became whether to reduce the hours of service required for a year of service in a 401(k) plan or to shorten the service period required for eligibility. This would allow all employees to make 401(k) contributions sooner. However, they would also be eligible for the employer matching contribution if there is one, unlike entering the plan early under the LTPTE rules. Therefore, these decisions have significant implications for plan participation, vesting, administrative complexity, and audit requirements.
SERVICE CALCULATIONS
The first level of complexity in administering the LTPTE
rules exists in how the consecutive years of service are calculated. In most cases the first eligibility calculation period is based on the employee’s first year of employment. It begins with their first day of employment and ends on their first anniversary date. Then the second eligibility calculation period begins on the first day of the plan year after the employee’s original date of hire and ends on the last day of that same plan year. Therefore, the first eligibility computation period and the second overlap. In theory a participant could be hired on December 1, 2023, and be eligible to participate in the plan as a LTPTE as of January 1, 2025, assuming that they worked more than 500 hours from December 1, 2023, to November 30, 2024, and worked more than 500 hours from January 1, 2024 to December 31, 2024. This basically negates the rule that an employer can require an employee to be employed for one year and work at least 1000 hours in that year at least
as we get further away from 2021 especially if the clients have a lot of rehires or plans move record keepers and/or compliance administrators. Takeovers just became exponentially more complex because of these rules.
ALTERNATIVES TO LTPTE RULES
Faced with the challenges of administering these new rules with and for our clients, we soon realized that if it were at all possible, we should work with our clients to amend their plans to avoid the application of the LTPTE rules. This involved individual conversations with each one of them to discuss the pros and cons of each option available to them and why they should
consider avoiding having these rules apply to their plan. Once we explained to them how easy it would be for a part time employee to meet the LTPTE rules, especially after SECURE 2.0 became effective and the added complexities that these rules would add to their plan such as forever having to track a LTPTE as such and crediting them with years of service for vesting at a rate faster than their full time employees, they were very motivated to hear how they could avoid them. In our estimation there were a couple of choices to be made. Each client had to choose between two primary approaches: (1) reducing the hours of service required to achieve a year of service or (2) shortening the overall
eligibility period required for plan entry.
Reducing Hours of Service Requirement
Some of our clients wanted to keep a longer waiting period for their eligibility requirements due to turnover in their industry. For those clients we suggested that they lower their required hours of service down from the 1,000 hours that we have normally used to 500 to meet the definition of a year of service for eligibility purposes. Therefore, an employee still had to work for them for twelve months to be eligible, though they only had to work 500 hours in that twelve-month period instead of 1,000 hours. This would allow them to avoid the LTPTE rules and would not allow
the part-time employee into the plan significantly sooner than the LTPTE rules would.
As with anything though, there are advantages and disadvantages to this approach. The biggest advantage is to reduce the complexity of administering the plan and avoid the LTPTE rules. This will create uniformity in the eligibility calculations as well as vesting across all types of employees and participants. The second advantage is that it encourages greater participation from the parttime employees and provides them with a valuable benefit that they may not have been eligible for prior to this.
One disadvantage of expanding eligibility is that it may increase the number of participants which can increase the costs of administering the plan. This is especially true if the plan is on the borderline of having to have an annual audit. Expanding eligibility by lowering the hours required to meet the one year of service requirement would also make the newly eligible participants eligible for the employer match if there is one. As a LTPTE they would not have been eligible for the match. This will likely increase the cost to the employer as well. It may also result in additional fiduciary and compliance responsibilities such as maintaining records for a larger pool of participants and increasing the number of
OFTEN WHEN MOVING FROM ONE EMPLOYER TO ANOTHER, IF AN EMPLOYEE MUST WAIT FOR A YEAR BEFORE THEY ARE ALLOWED TO PARTICIPATE IN THEIR NEW EMPLOYER’S PLAN, IT CAN BE SEEN AS A DISADVANTAGE TO MOVING JOBS OR A REDUCTION IN BENEFITS.
participants that must receive required notices etc.
Reducing Service Requirements
Alternatively, employers might choose to lower the eligibility service period to something less than one year. This would allow all employees to enter the plan sooner. For instance, rather than requiring employees to complete one full year of service before participation, an employer might permit entry after six months or immediately upon hire. This has several advantages. First, it may increase employee satisfaction and retention by offering earlier access to retirement benefits. Many employees who are new hires will be coming from companies who may have offered them the ability to participate in a 401(k) plan. Often when moving from one employer to another, if an employee must wait for a year before they are allowed to participate in their new employer’s plan, it can be seen as a disadvantage to moving jobs or a reduction in benefits. Another advantage is simplified tracking and administration by reducing the need for monitoring multiyear eligibility periods. It also
creates consistency across employee classifications ensuring that part-time and full-time employees have equitable access to benefits. Many of our clients chose to tie eligibility for the 401(k) plan to their eligibility requirements for health insurance. Therefore, they only have one set of eligibility requirements to track for all their benefits. There are also disadvantages to consider with this change. Allowing quicker access to the plan can also lead to small balances that have to be dealt with in the case of employees who turn over quickly. Like the other change to hours of service, this change can also increase costs to the employer for compliance, record keeping, fiduciary oversight, and for matching contributions. If the match is a safe harbor match, the employee would be entitled to take the match with them if they left because it would be fully vested immediately.
AUDIT CONSIDERATIONS
One of the key considerations in modifying eligibility rules is the impact on plan audit requirements. Under ERISA (Employee Retirement Income Security
Act), large plans with 100 or more participants are generally required to undergo an independent audit. Increasing eligibility—either by reducing the service hour requirement or shortening the eligibility period—may result in more employees qualifying as participants, thereby pushing a plan over the 100-participant threshold. However, LTPTEs who make 401(k) deferrals, although they do not receive an employer matching contribution are counted as a participant for determining if the plan is required to be audited. The argument can be made that many LTPTEs may not defer if they are not eligible for the employer matching contribution. By reducing the eligibility requirements to avoid the LTPTE rules, more of those participants who become eligible under the new rules and are eligible for the employer match may participate where they would not have as a LTPTE. That is something the plan sponsor should consider if they are close to the audit threshold. To mitigate this risk, employers should: evaluate current plan participant counts to determine the impact of expanded eligibility, work with plan administrators
to implement strategies that manage audit-related expenses and consider the cost-benefit tradeoff of increasing participation against the potential audit burden.
The decision to adjust eligibility criteria in a 401(k) plan under SECURE and SECURE 2.0 carries significant implications. Employers must carefully evaluate whether to reduce the hours-of-service requirement for a year of service, shorten the eligibility waiting period, or do nothing and have the LTPTE rules apply to their plan. Each option presents trade-offs in terms of participation, administrative complexity, costs, plan audits, and vesting obligations. Ultimately, the optimal approach depends on the employer’s workforce composition, financial considerations, and administrative capabilities. By carefully structuring plan eligibility requirements, employers can both comply with regulatory mandates and create a more inclusive, effective retirement savings program for all employees.
HSA Plans Decoded: Finding the Right Fit for Every Need
What type of HSA program is right for your organization and your employees?
AS
HSAS
CONTINUE TO GROW IN POPULARITY,
THIS WINWIN
OPTION OFFERS TAX ADVANTAGES TO BOTH EMPLOYERS AND
EMPLOYEES. An HSA benefit, when coupled with an eligible HDHP medical plan, can help increase employee satisfaction while decreasing employee financial stress.
Getting an HSA plan off the ground can seem like a daunting task. There are many things to consider during plan set up including: ease of administration, compliance, employee education, investment options, among others. There is no onesize-fits-all option. The purpose of this article is to help you determine what level of involvement in plan setup is right for your organization.
The first step to setting up an HSA plan is to find an HSA provider. According to PSCA’s 2024 HSA Survey, the two most common HSA providers are a bank (47%) and a dedicated HSA administrator (43%). For guidance on selecting an HSA provider and rolling out the benefit to employees, PSCA provided a two-part series in this Defined Contribution Insights publication that may be beneficial to you. Part 1, “Everything You Need to Know Before You Select Your HSA Provider” was published in the Spring 2024 edition. Part 2, “Introducing a New HSA Benefit or Provider to Employees”, published in the Fall 2024 edition
Once a provider has been chosen, the next step involves creating a plan for your employees.
CREATING BARE-BONES TO CADILLAC PLANS
Bare-Bones Plans:
An HSA provider can do most of the heavy lifting for any plan. A basic plan can be through an outside vendor that employees can contact directly to set up their accounts. It does not have to be through an employer plan at all. Offering employees a provider and giving them the contact information is enough to get the process moving forward.
This option requires a low level of employer involvement and may be attractive depending on the number of HSA participants and the level of employer resources available. However, with this
option, the employer may not have any say in certain plan features including fees charged by the HSA provider to account holders and investment options once account balances reach a certain threshold.
If employees are allowed to contribute to their HSA via payroll deductions or there will be employer contributions made into the HSA, you will need to determine with the HSA provider how these funds are deposited into the accounts.
Mid-Tier Plans:
Bundling options can reduce administration burdens. Bundling an HSA with the same provider as the HDHP or the retirement plan can make it easier for both the employees and the employer. Employees have one less vendor to remember and they may be able to access their HSA account information through logging into the existing vendor’s site. If bundled with the HDHP provider, there may be synergies such as the HSA being automatically debited when claims are incurred (if the employee desires) or providing access to viewing medical claims and how the claim has been applied against the deductible.
If bundled with the retirement plan provider, HSA contributions (both employee and employer) may be able to be automatically sent at the same time as the retirement plan contributions. This may allow the sending of only one file from the payroll provider which would generate potential cost savings for the employer.
Plans under this level allow the employer to have more say in the design setup. HSA contribution structures can be more defined based on the employer’s needs including possibly matching employees’ HSA contributions instead of only a flat employer HSA contribution or providing different employer HSA contributions based on the medical plan coverage level enrollment. There may even be an opportunity to provide perspective on the investment options offered.
Employee communications regarding the plan and ongoing employee HSA education become more important with this level of plan. The HSA provider will be able to assist with tools and resources for employees that employers can share. The provider may also be
by Jennifer Rayner
Using Generative AI for Employee Engagement
There are multiple ways employers can take advantage of new technology to unlock opportunities for financial well-being for employees.
AS TECHNOLOGY CONTINUES TO TRANSFORM THE WORKPLACE, GENERATIVE ARTIFICIAL INTELLIGENCE ( AI) IS EMERGING AS A POWERFUL TOOL FOR FOSTERING EMPLOYEE ENGAGEMENT IN INNOVATIVE AND MEANINGFUL WAYS.
THE SHIFT TO PERSONALIZED ENGAGEMENT
Traditional approaches to employee engagement often rely on broad, one-size-fitsall strategies that struggle to resonate with diverse workforces. Generative AI has the capacity to change this by delivering tailored experiences that address individual needs, preferences, and financial goals. By analyzing vast amounts of data and generating personalized insights, AI can help employees feel seen and supported in ways that drive meaningful action.
For example, an AI-powered platform can identify patterns in employees’ financial behaviors – such as savings habits or retirement contribution rates – and deliver customized prompts to encourage better decisionmaking. This might include nudges to increase 401(k) contributions, educational resources on debt
management, or reminders to take advantage of employerprovided benefits (Empuls, 2024).
PRACTICAL APPLICATIONS IN RETIREMENT PLANNING
In the context of retirement planning, generative AI is particularly well-suited to bridge the gap between awareness and action. Consider the following applications:
• Personalized Messaging: AI can craft messages tailored to an individual’s financial situation, helping to simplify complex retirement concepts and make them more accessible. For instance, employees who are behind on savings might receive encouragement to contribute just 1% more to their plan, accompanied by an explanation of the long-term impact.
• Targeted Education: Generative AI can identify
common knowledge gaps and deliver microlearning modules that address these areas. Employees could receive short videos or interactive tools that explain topics like compound interest, employer match benefits, or investment diversification (All About AI, 2024).
• Engagement Analytics: By analyzing engagement data, AI can provide employers with insights into which communication strategies are most effective. This helps refine future engagement efforts and ensures resources are being deployed where they have the greatest impact (Oakwood International, 2025).
• Supportive Conversations at Scale: Perhaps one of the most transformative applications is AI’s ability to simulate supportive conversations. While not a substitute for one-on-one coaching, generative AI can deliver empathetic, conversational interactions at scale—
providing guidance, encouragement, and actionable steps to every employee, regardless of their starting point. When employees are ready to delve deeper, the AI can seamlessly guide them to the right human resource – whether that’s a plan advisor, financial coach, or HR specialist – ensuring they receive expert, personalized help when it matters most.
THE ROLE OF EMPATHY IN AI-DRIVEN ENGAGEMENT
One of the most promising aspects of generative AI is its ability to deliver empathy at scale. By creating messages that are not only personalized but also sensitive to an individual’s challenges, AI can build trust and foster a sense of psychological safety. This is particularly important for employees in low-to-moderate-income (LMI) brackets, who may feel overwhelmed or excluded from traditional financial education efforts.
For instance, AI can generate communications that acknowledge common
/
barriers – like the difficulty of making ends meet or the fear of making the wrong investment decision – while providing actionable steps to overcome them. When employees feel understood, they are more likely to engage with available resources and take steps toward financial well-being (Commonwealth, 2024).
ADDRESSING CHALLENGES AND ENSURING INCLUSIVITY
While the potential of generative AI is significant, it is not without challenges.
References
Concerns about data privacy, algorithmic bias, and the need for human oversight must be carefully managed to ensure these tools serve all employees equitably. A recent study by the Brookings Institution highlighted the risk of bias in AI-based financial services, emphasizing the importance of diverse datasets and transparent practices (Brookings Institution, n.d.). Employers and plan sponsors must prioritize these considerations to build trust and avoid exacerbating existing inequalities.
Furthermore, a national survey by Commonwealth
found that 63 percent of respondents expressed concerns about security when using financial chatbots, underscoring the importance of emphasizing data security in AI applications (Commonwealth, 2024).
CONCLUSION
Generative AI offers a unique opportunity to redefine employee engagement by making it more personalized, empathetic, and impactful. For retirement plan sponsors and HR leaders, integrating AI-driven tools into engagement strategies can not only improve financial
• Brookings Institution. (n.d.). Reducing Bias in AI-Based Financial Services. Retrieved from https://www.brookings.edu/research/reducing-bias-in-ai-based-financial-services/
• Commonwealth. (2024). Financial AI for Good: Guide & Chatbot. Retrieved from https://buildcommonwealth.org/research/financial-ai-for-good-guide-and-chatbot/
• Empuls. (2024). AI Impact on Employee Engagement And Productivity. Retrieved from https://blog.empuls.io/ai-on-employee-engagement/
• All About AI. (2024). AI in Finance Statistics 2025: Impact, Future Trends & Key Insights. Retrieved from https://www.allaboutai.com/resources/ai-statistics/finance/
• Oakwood International. (2025). AI in Employee Engagement in 2025: Uses, Benefits and Trends. Retrieved from https://www.oakwoodinternational.com/blog/ai-in-employee-engagement
outcomes for employees but also foster a culture of support and empowerment. By simulating supportive conversations at scale and guiding employees to the right resources when they’re ready, generative AI bridges the gap between awareness and action. As we continue to explore the possibilities of AI in the workplace, the key will be leveraging its potential responsibly and inclusively –ensuring that every employee, regardless of their financial starting point, has the tools, encouragement, and human connections they need to succeed.
Jennifer Rayner is the Founder & CEO of Moniwell and a member of PSCA’s Education & Communication Committee.
Leveraging NQDC Plans to Retain Key Employees
PSCA’s 2024 Non-Qualified Plan Survey is now available.
IN THE BATTLE FOR EXECUTIVE TALENT, COMPANIES OFTEN LEVERAGE NONQUALIFIED DEFERRED COMPENSATION (NQDC) PLANS TO PROVIDE A UNIQUE RETIREMENT SAVINGS PROGRAM FOR KEY EMPLOYEES.
Although NQDC plan designs vary significantly, PSCA’s annual survey of NQDC plans shows a continued focus on plan education and helping employees save for retirement across all plan sponsors.
The 2024 NQDC Plan Survey, sponsored by Gallagher, Lincoln Financial, and Principal Financial Group®, shows an increased focus on education and retirement readiness, though these plans are still primarily used to differentiate the compensation package for top talent. Seventy-eight percent of respondents provide NQDCspecific education, a notable increase from only half of plans five years ago. While the majority (85.2 percent) stated that they offer a plan to ensure a competitive benefits package and nearly 60 percent offer a plan to retain eligible employees, nearly the same percentage offer a plan to help eligible employees accumulate retirement assets (58.8 percent) and nearly half offer a program to allow highly
compensated employees (HCEs) to defer the same proportion of their income as other employees. See Exhibit 1.
In the current landscape, simply offering a competitive salary isn’t enough to attract top talent. Offering a NQDC plan can differentiate the benefits package to compete for the most talented individuals in their industries to help drive company growth and objectives. NQDC plans allow organizations flexibility in providing retirement benefits to leadership beyond what is available in a traditional 401(k) plan.
PSCA’s annual NQDC survey, developed by industry leaders from PSCA’s NQDC committee, monitors and analyzes trends and best practices in providing enhanced retirement benefits to key employees. Data highlights include:
1. Plan eligibility: On average, 6.5 percent of total employees are eligible to participate NQDC plans. Position/job title
Exhibit 1: Reasons in the Top Three for Offering a Non-Qualified Plan to Employees
APRIL 30 - MAY 2
LAS VEGAS, NV
PLAN SPONSOR PERSPECTIVES
by Hattie Greenan
Perspectives on Retirement Income Options for Participants
A few respondents are currently implementing lifetime income options for participants while several are taking a wait-and-see approach.
FOR THIS ISSUE OF PLAN SPONSOR PERSPECTIVES, WE ASKED MEMBERS THEIR THOUGHTS ON RETIREMENT INCOME PRODUCTS FOR EMPLOYEES – WHETHER THEY ARE ALREADY PROVIDING ANY PRODUCTS TO PARTICIPANTS OR IF IT’S SOMETHING THEY ARE CONSIDERING. Though most are not yet providing a lifetime income product in the plan, a few are and several are taking a wait and see approach. Some offer distribution options geared towards providing a monthly income stream in lieu of adding a lifetime income product to the plan. Comments from plan sponsors follow.
Large manufacturing company: We are actually implementing Fidelity’s Guaranteed Income in our salaried and
union 401k Plans this year. We are currently in the process of selecting the insurers.
Large automative services company: We are interested in decumulation/retirement income, but we have not yet dug deeply into the topic. It seems that there is a lot of energy around this, and we definitely will do something with it in the next few years.
Large multiple employer plan: We do not currently have a retirement income option in our plan, but we are hoping to add one later this year or next year. We are currently researching options with our investment advisor and with our recordkeeper. Our recordkeeper has announced a few options, but we have not made a decision yet. We did have a fund with a previous
recordkeeper, and some of our participants still have money in it because of that, but there are no current contributions going into it. It was very popular with our participant base though.
Large engineering and construction company: We have flexible regular withdrawal options available and also support from a managed account tool to determine the best payout options. The plan also has retirement specialists available at the recordkeeper that participants can call to do account reviews so they can plan for that retirement income.
Midsize bank: We haven’t had any discussions in our Plan Administration Committee about adding any retirement income options.
Large DOE Contractor: We offer partial distributions and installment payments from the 401(k) plan. Period certain installment elections are irrevocable. Options include: Period Certain (10, 15, 20 years or life expectancy), or Dollar Certain (a fixed monthly amount)
Small independent government agency: We do not currently have any products aimed at providing a monthly income stream to retirees. It comes up periodically and will likely bubble up when we update our plan docs but right now have minimal, standard distribution options.
Large industrial manufacturing company: We are monitoring this area closely and are very interested learning about the innovative products coming to market. We have not gotten to a point where we feel we need to actively consider any products but are not opposed to the possibility of offering one in the future, provided it makes sense for our population. At this time, we prefer to continue to observe the trends and hear what others who are implementing a product have to say about their experiences.
Large manufacturing company: Our company has not looked at income stream to retirees. I have signed up for the bootcamp at the national conference on this subject. We do allow periodic distributions but that is currently the only option that retirees have available.
Mid-size nonprofit: We use target date funds and therefore employees transition to the target retirement fund once they reach retirement age.
Midsize transportation company: No, we do not offer any benefits/ products for retirees. I don’t feel this would be a viable option for our industry and work force.
Hattie Greenan is the Director of Research and Communications for PSCA.
REGARDLESS OF ITS ORIGINS, DST REMAINS SOMETHING OF AN ARTIFICIAL CONSTRAINT, FOUNDED ON ONE SET OF (ARGUABLY) ARCHAIC ASSUMPTIONS OF (CERTAINLY NOW) QUESTIONABLE VALIDITY. IT’S NOT ENTIRELY UNIQUE IN THAT RESPECT. CONSIDER, FOR EXAMPLE, THE IDEA OF A STARTING CONTRIBUTION RATE OF THREE PERCENT FOR AUTOMATIC ENROLLMENT PLANS.
This decision is often laid at the feet of agriculture (more specifically farmers, who generally speaking abhor it), but that business tends to be driven by the actual patterns of the sun, rather than the artificial constraints of a clock (as anyone who has pets that expect to be fed at certain times whatever the clock may show can attest). The reality is that the science on cost savings related to these shifts remains contradictory at best. In fact, there’s a better case to be made for the negative effects these shifts have on our body’s natural circadian rhythms, with studies suggesting it has led to increased traffic accidents and even heart attacks.
WHAT ABOUT RETIREMENT?
Regardless of its origins, DST remains something of an
artificial constraint, founded on one set of (arguably) archaic assumptions of (certainly now) questionable validity. It’s not entirely unique in that respect. Consider, for example, the idea of a starting contribution rate of three percent for automatic enrollment plans. Now, since the enactment of the Pension Protection Act of 2006, we’ve at least had a legislative “anchor” for an assumption that is, and has long been, almost uniformly seen as insufficient (not just to achieve retirement security, but in many cases to maximize the employer match).
But for decades before that (harkening back to a time when some marketing genius labeled it “negative election”), three percent became a de facto default rate. Sure, there was some logic that it was small enough to discourage participant from opting-out
(and, looking at the opt-out rates for state-run IRAs with a higher default, there’s perhaps some merit to that concern) – but mostly it anchored on a long-standing practice – one that was, in turn, anchored on an obscure reference in an example in an IRS bulletin.[iv] One that, as it turns out, was carried over into the automatic-enrollment requirement for new plans as part of the SECURE 2.0 Act of 2022.
We similarly have, though perhaps not as myopically, enthusiastically embraced the use of professionally managed target-date funds as a default investment –though most seem to have surreptitiously adopted a “through” retirement glidepath that may, or may not, align with participant expectations. Managed
accounts, ostensibly with a more personalized focus, stand to enhance and improve participant investment allocations — provided the fees are commensurate with the promised value.
We seem to be stuck with DST and its implications for yet another season, despite what appears to be annual legislative attempts to undo it. And so, for a couple weeks each year for the foreseeable future, most of us will be a bit discombobulated as we adjust.
It is worth remembering, however, that we aren’t “stuck” with the traditional defaults — that we can “spring” forward, regardless of the season — and there are plenty of good reasons — and options — to do so.
Nevin Adams is the former Chief Content Officer of the American Retirement Association.
Footnotes
[i] I’m looking at you, Arizona, Hawaii, and… Daylight Savings 2025: The US States Where Clocks Don’t Change - Newsweek
[ii] Fun fact: In 1920, The Washington Post reported that golf ball sales in 1918 — the first year of daylight saving — increased by 20%.
[iii] Daylight saving time didn’t become standard in the U.S. until the passage of the Uniform Time Act of 1966, which mandated standard time across the country within established time zones. It stated that clocks would advance one hour at 2 a.m. on the last Sunday in April and turn back one hour at 2 a.m. on the last Sunday in October. States could still exempt themselves from daylight saving time, as long as the entire state did so. In the 1970s, due to the 1973 oil embargo, Congress enacted a trial period of year-round daylight-saving time from January 1974 to April 1975…in order to conserve energy.
[iv] Page 8 — an example regarding “negative election” used 3%... https://www.irs.gov/pub/irs-irbs/irb98-25.pdf
by James Locke
Government Affairs Update: New Year, New Congress, New Opportunities
This year, the American Retirement Association will be working in Washington to advance multiple measures that did not make it into law in 2024, and will educate and advocate for the continued tax-advantage status of retirement plans with the new Congress.
AS CONGRESS RECONVENES IN 2025, THERE WILL BE MANY OPPORTUNITIES FOR LAWMAKERS TO IMPROVE AND EXPAND THE EMPLOYER-SPONSORED RETIREMENT SYSTEM.
Retirement Association (ARA), PSCA’s parent organization, is poised to champion several proposals that would improve access to employer-sponsored plans, in addition to strengthening them.
EXPANDING ACCESS TO COLLECTIVE INVESTMENT TRUSTS FOR 403
Expanding the ability of 403(b) plan sponsors to include Collective Investment Trusts (CITs) in their investment options remains one of the ARA’s top priorities. Specifically, the ARA continues to back a proposal that would allow for 403(b) plan sponsors to incorporate CITs into their investment offerings. Last Congress, the Retirement Fairness for Charities and Educational Institutions Unfortunately, the Senate version, which garnered significant bipartisan support, ultimately died on the vine. The ARA is working with lawmakers to reintroduce these bills and ensure their passage into law.
ROTH IRA ROLLOVERS
The ARA is advocating for legislation that would allow Roth IRA savings to be rolled over into workplace-based defined contribution plans. Currently, employees can transfer pre-tax savings when changing jobs, but Roth savings are locked in IRAs.
To address this, the ARA collaborated with Rep. LaHood (R-IL) and Rep. Sanchez (D-CA) to introduce H.R. 6757, which would enable the smooth transfer of Roth savings into designated Roth buckets within 401(k) plans. The ARA is working with Reps. LaHood and Sanchez to reintroduce this bill, in addition to identifying champions in the Senate to introduce a companion bill.
NEW TAX CREDIT FOR NONPROFITS
Another key initiative being advanced by the ARA is improving retirement plan access for charities and nonprofits. The ARA is pushing for legislation that would establish a new payroll tax credit to encourage nonprofit organizations to offer retirement plans to their employees.
While SECURE 2.0 introduced a substantial retirement plan start-up credit tied to income tax liability, making it more affordable for small businesses to adopt retirement plans, this provision doesn’t benefit nonprofits, as they typically don’t have income tax liability. In response, the ARA has been working with Congress to introduce a version of the SECURE 2.0 tax credit that would apply to nonprofit payroll tax liabilities instead.
Last August, Senators James Lankford (R-OK) and Catherine Cortez Masto (D-NV) introduced a bill that would create this payroll tax credit for nonprofits seeking to implement retirement plans for their employees. The ARA is working with the bill sponsors to reintroduce the bill, in addition to working with House members to introduce a companion bill.
TAX REFORM AND RETIREMENT SAVINGS
With the Tax Cuts and Jobs Act set to expire at the end of 2025, Congress is beginning to explore
