Five questions plan sponsors should address in 2023
Retirement Director Ben Rizzuto discusses key questions related to recent trends and developments in the retirement industry that plan advisors and plan sponsors should be prepared to address in 2023.
8 minute read
- Looking at how participants are allocated and inquiring about what type of benefits would encourage them to stay enrolled in the plan both present opportunities for engagement and education.
- The SECURE 2.0 Act contains multiple provisions that plan sponsors may want to consider adding to their plans.
- On the fiduciary front, the release of the Department of Labor’s final rule on “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” and a review of DC plan lawsuits both reinforce the importance of a robust due diligence process.
The beginning of the year is an important time of year for all of us. It serves as an opportunity to ask questions of ourselves about what is working and what can be changed, and to create a plan that will guide us through the rest of the year. This process works for individuals and companies, as well as for those of us in the retirement plan industry.
With that said, I’d like to provide you with five questions to help you and the plan sponsors you serve start the year off right.
1. How are participants currently allocated?
The Tennessee Department of Treasury recently launched an educational campaign targeting high-need participants. One focus area of the campaign could be easily replicated using two readily available pieces of information: age and asset allocation. The TN Treasury Department looked for participants aged 50 and older with equity allocations above 75% and those aged 50 and under with equity allocations under 25%.
The first group was considered at risk of taking on too much risk given their shorter time horizon, whereas those in the second group may be taking on too little risk given their longer time horizons.
In either case, identifying these types of participant personas can create valuable opportunities to communicate with or educate participants. This could be done via email communications to these groups providing information on appropriate asset allocation ranges for different time horizons, or via educational sessions from recordkeeper educators or plan advisors for a more personal approach.
Whether it’s age and asset allocation, deferral rate, number of target-date funds being used (e.g., more than one?), or other personas that exist within your participant population, these groupings provide an easy and repeatable way for plans of any size to engage participants.
2. How can we make sure employees stay enrolled in the plan?
Not only would the exercise above provide educational opportunities, but it may be a great way for HR/Benefits folks to do a pulse-check with employees. And these types of check-ins are perhaps more important than ever right now: A recent study from Mercer showed that the number of employees considering leaving their employer had increased to 36% in 2022 compared to 28% in 2021.1 The top three reasons were insufficient pay, burnout, and insufficient healthcare benefits.
Looking at some of the specific changes respondents said they’d like to see in their retirement plan benefits, those I found most interesting were:
- Increased employer matching contributions – 43%
- Employer match contributions for paying down student loan debt – 42% (this was the number-one response for people 45 or younger)
- Employer match contributions for contributions to HSA – 38%
- Penalty-free distributions for emergency expenses – 32%
- ESG investment options – 11%
- Cryptocurrency investment options – 7%
Another study from VOYA also asked participants what employers could offer to participants to improve their overall happiness and the likelihood of staying with their current employer. 52% said they’d like to have wellness benefits such as gym reimbursement, tools to reduce debt, and workplace emergency savings plans. Along with that, 47% said they’d be more likely to stay if offered Health Savings Accounts, Flexible Savings Accounts, and dependent care accounts.2
I always find these types of surveys useful as they provide us with a view into the minds of participants. Even if you already offer your current plan participants some of these benefits, the findings may spark some new ideas – or at least provide a good reason to check in with participants. A great place to start is to ask them some open-ended questions, such as: “What more can we be doing?”, “How can we better support you?” and “What do you think your colleagues would find helpful?”
3. How will SECURE 2.0 affect our plan?
Mercer included a couple of those questions on their survey – student loan repayments and penalty-free distributions for emergencies, for example – because they are related to the recently passed SECURE 2.0 bill. With 92 separate provisions related to retirement plans and retirement planning, the bill is far-reaching and has significant implications for participants and the industry as a whole. While we’re all still getting up to speed, it will be important for advisors and plan sponsors to understand how the provisions of the bill will affect plan administration as well as participant communications.
There are a number of provisions in SECURE 2.0 that plan sponsors may want to consider adding to their plans, such as the aforementioned student loan payment match and emergency savings accounts. Along with that, there are several administrative items that plan sponsors will need to work through, such as the required minimum distribution (RMD) age moving to 73 in 2023 and then 75 in 2033, as well as modifications to the Saver’s Credit (now the Saver’s Match). SECURE 2.0 should ultimately do a lot to help many Americans, but the bill also has a number of effective dates, as well as several items that remain to be seen. (I covered many of those in my recent article on sorting out SECURE 2.0 and what it means for retirement planning.)
4. Does our fiduciary process meet the recent guidance set out by the DOL?
On November 22, 2022, the DOL released its final rule on “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.” While the catalyst for this rule was the ongoing fight over environmental, social, and governance (ESG) investing, it also provides a number of ideas that plan sponsors should consider – or be reminded of – when it comes to how overall retirement plan investments are selected and monitored.
The key elements of the final rule include the directive that ESG factors may be – but are not required to be – considered as part of a fiduciary’s prudent due diligence regarding the risk and return characteristics of plan investments. This softens the language chosen in previous rules, but still notes that a fiduciary’s decision must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis, and that such factors may include the economic effects of climate change and other ESG considerations.
Along with that, the final rule notes that standards applied to Qualified Default Investment Alternative (QDIA) funds must focus on relevant risk and return factors and not subordinate the interests of participants and beneficiaries to objectives that are unrelated to the provision of benefits under the plan.
Ultimately, the rule dictates that fiduciaries must employ an investment analysis process that serves the best interests of the plan while still considering all factors that “a fiduciary knows or should know are relevant to [a] particular investment.”3
The rule’s release provides an opportunity for advisors and plan sponsors to review – and possibly enhance – the due diligence and ongoing monitoring processes they have created to ensure they meet these new standards and serve the best interests of the plan.
5. Are there things we can learn from past ERISA lawsuits?
If plan sponsors don’t think the previous item is important, a recent review of DC plan lawsuits should serve as a reminder of what can happen if you don’t follow your fiduciary responsibility. The review, by Callan, looked at 165 lawsuits filed against DC plans between January 2019 and January 2022 to see what trends and similarities could be found.
A few of the key points from the study include:
- 83% of lawsuits challenged some facet of fund selection
- 63% focused on the target date fund suite
- 75% challenged administrative fees and other elements of plan services4
Here again we see how important it is for plan sponsors to understand how investment decisions are made, how their TDF suite functions (glide path, underlying fund allocations, etc.), and what they are paying for and receiving from service providers.
Finally, perhaps the most astounding finding from this study is the sheer number of lawsuits! Clearly, more law firms are going after more plan sponsors, both large and small, reinforcing how important it is to have solid fiduciary processes in place and clearly documented.
And there you have it. Five questions that will spur a tremendous amount of conversation in the year ahead, and also lead to a better overall understanding of the retirement plan, its participants, and it processes. By presenting you with these questions and offering guidance on how to approach them, my hope is that it will help you set a course for the year ahead and ensure plan sponsor and advisors are on the same page.
For more timely updates on recent events that could impact plans or plan participants, be sure to check out the latest edition of our quarterly Top DC Trends and Developments.
1 Mercer 2022 Inside Employees’ Minds study, October 2022.
2 “Amid the war for talent, don’t forget the retirement plan, Voya survey finds.” Voya, November 2022.
3 “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.” Federal Register, December 2022.
4 “What DC Plan Sponsors Should Know About Recent Litigation Trends: Part 1.” Callan, October 2022.
The information contained herein is for educational purposes only and should not be construed as financial, legal or tax advice. Circumstances may change over time so it may be appropriate to evaluate strategy with the assistance of a financial professional. Federal and state laws and regulations are complex and subject to change. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information provided. Janus Henderson does not have information related to and does not review or verify particular financial or tax situations, and is not liable for use of, or any position taken in reliance on, such information.
This information is not intended to be legal or fiduciary advice or a full representation of all responsibilities of plan sponsors and financial professionals.