Client Service September 18, 2020

PANC 2020: Supporting Financial Wellness in the New Workplace

Financial wellness has taken on a new relevance in the midst of the COVID-19 pandemic. Experts share tips on how advisers can figure out how to offer access to best-in-breed programs to enrich overall benefits programs and participant outcomes.

Reported by

A retirement plan and a health care plan do not bridge all the gaps employees need. That’s where financial wellness programs come in, Brett Shofner, president, Work Plan Retire, told attendees of the 2020 PLANADVISER National Conference during a virtual session.

The average company spends 83% of its expense budget on its people through salaries and benefits. Therefore, a company’s chief asset is its people. Financial wellness is all about finding a way to drive productivity among that huge spend for any company, Shofner said.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

The Wellness Crossroad

The COVID-19 pandemic has made financial wellness even more relevant and has led to an enormous transformation of the workplace, according to Rita Fiumara, senior vice president of investments at UBS Financial Services Inc. “Companies are at a crossroads. Those that capitalize on post-COVID opportunities will find themselves in a good position to attract and retain employees as the situation stabilizes,” she said at the session.

Fiumara added, “We’ve seen the employee demand for our financial wellness services triple and employer demand for financial wellness grow 700% since March. Helping employees better manage their finances is the single greatest benefit employers can offer. A workforce that has more control of its financial life is more engaged and has the mental energy to tackle the business’s challenges.”

Prior to COVID-19, financial wellness programs typically included topics such as budgeting and reviewing expenses, and less than one-third of the employee population was engaged in such programs. “We never really saw the heightened popularity of capturing the larger audience,” Fiumara explained. Post COVID-19, employers are using the digitalization of participant advice to track the progress of participants over time. The implementation of goals indicates the success of wellness programs, she said.

Setting Expectations

MJ Goss, director of retirement planning and financial wellness, 401k Advisors Intermountain, said usage and execution of financial wellness programs have been very low. As plan sponsors consider adopting a program, they want to understand why usage is so low.

He said advisers need to set the bar. “Are we going to set the expectation that we’re going to have 80% participation or are we going to set the expectation according to the particular plan sponsor population?” he asked. “Most of the programs we use have a solid dose of data that comes with the program. But we can pre-set success by having the right tool in place.

“Even as early as the request for proposals [RFP], we know we are experts at this and we can bring wellness success to a plan. It is a best practice to find a program that will meet your people where they are and produce the greatest results for the plan sponsor and participants.” Goss’ team uses incentives to get participant enthusiasm up—gifts that get people excited including Apple watches and paying one month of a participant’s mortgage. They also tell stories about their own personal experiences with financial wellness tools to motivate participants.

“The quicker we can show success, as early as possible, the faster the plan sponsor understands its investment in the program. I truly believe that as long as we set an accurate expectation early, then we should 100% be able to change in a dramatic way the amount of people impacted by these tools.”

But do employees want to learn how to budget or do they want actionable ways for it to be done for them? Shofner said he’s observed that automation prevents financial wellness success. Goss suggested that when it comes to learning about investing savings, there are back-up tools such as target-date funds (TDFs). But, when it comes to financial security, employees really need to learn the foundations.

One Benefit Dollar

Employers have a certain amount of money budgeted for benefits and they have to decide where to put that money. They have to allocate that money toward retirement account matches, health care plans, profit sharing and more. The bottom line, Shofner said, is that the joke is on the employer if there is any failure on the retirement side. The older, aging employees that cannot leave are very expensive and are massive liabilities for the employer.

Daniel R. Bryant, president of retirement and private wealth, Sheridan Road Financial, a division of HUB International that has large resources in both wealth and health sectors, said the largest expense outside of payroll is a company’s benefits program. Employers have these benefits to help attract, retain and reward their employees. And, when it comes to health care benefits, the cost can be on average $18,000 per family and up to $24,000 per year in states such as New York and Connecticut. “They continue to escalate at about 10% per year and it’s growing higher on the older workforce,” he said.

Employers have finally realized that there is a connection between financial fitness, emotional well-being and health wellness. So, where an employer allocates resources to help employees accomplish what they need to accomplish is key. Research has helped employers learn that if an employee has financial anxiety, that worker may have health care issues, and if someone is not physically fit, the health care cost for the employer will go up.

Employers are adding voluntary benefits on the health care side, as well as in the financial wellness sector, including student loan debt and emergency funding aid. Many options are offered by a carrier through voluntary benefits where an employee can pick and choose what he wants. “Our view is that once you understand the demographics of your employee base, you’ll be able to offer the tools that fit your demographics,” Bryant said.

Fiumara added, “Keeping it simple, being genuine and consolidating and bring benefits together is key.”

The Markets September 17, 2020

PANC 2020: Is It Time to Re-evaluate TDFs?

There are a variety of TDF solutions to meet participants needs, so when should a custom solution be considered, and how do advisers evaluate TDFs in an unprecedented year for the markets?

Reported by

Since passage of the Pension Protection Act (PPA) in 2006, target-date funds (TDFs) have become the most popular investment option in defined contribution (DC) retirement plans.

“Last I checked—and the numbers are fluid—there’s about $2 trillion from the DC industry is invested in TDFs, and this is mainly because so many plans are defaulting so many people into them,” Daniel Oldroyd, portfolio manager and head of target-date strategies, J.P. Morgan Asset Management, told attendees of the 2020 PLANADVISER National Conference during a virtual session.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Brian Hanna, a partner at Everhart Advisors, said his firm offers comprehensive services, but in the investment monitoring space, monitoring TDFs is 80% to 90% of his focus since that’s where so many assets are. “I spend time educating plan sponsors about the power of re-enrollment and using TDFs as the plan’s QDIA [qualified default investment alternative],” he said. “I focus on helping sponsors have a prudent process for evaluating TDFs. We talk about fit with plan demographics and plan goals.”

Hanna said the bulk of conversations with committees now is about the use of TDFs by participants and the use of whatever do-it-for-me strategies the plan offers. He said conversations used to be about glide paths and risk, but once the Department of Labor (DOL) published its tips for evaluating TDFs, he tells committees that best practice is to focus on those items and document the process.

“The PPA [Pension Protection Act] was as good as it gets as far as retirement plan legislation,” said Nate Palmer, managing director, Portfolio Management Group, Wilshire Funds Management. “It addressed participant inertia and investment diversification. Since then, we’ve had an incredible improvement in retirement outcomes.”

Palmer said that back in 2004, his firm decided to go with custom TDFs for its plan. “There weren’t CIT [collective investment trust] TDFs back then, so we were able to provide a custom solution at a lower cost,” he explained. “We also could offer a variety of active and passive investments—back then TDFs were either/or—and we also wanted to offer more diverse asset classes.”

However, Palmer noted that with today’s new products, there are active/passive blended solutions, CIT solutions, and more asset class diversification, and he said he expects more to come. “There are so many good choices to consider, but if a plan’s participant population is different than average, advisers maybe still should consider custom TDFs,” Palmer said.

The Effects of COVID-19 on TDFs

Oldroyd pointed out that investors essentially went through an entire market cycle within less than a month this year. “In the course of three weeks, the markets dropped approximately 30%, then assets rallied,” Oldroyd said. “Now, we are conditioned that a 1% move in a day is tiny because of the sheer amount of uncertainty.” He noted that year-to-date, the S&P 500 is up 6.25%, and the average TDF at the end of a person’s glide path is up 2% to 4%.

He compared it to the Great Recession, when warning bells went off in 2007, the markets went through a “slow motion train wreck in 2008,” and markets started to rally around March 2009.

That stretched over three years, so plan sponsors may be wondering how to judge their plans’ investment performance this year. “I don’t know if two weeks in March and three weeks in April will merit the same impact as discussions during the 2008/09 crisis,” Oldroyd said. “TDFs are made to continue investing. Those who stuck with it have done pretty well.”

However, he said fixed income will probably be a topic for committee discussion for the next 18 months because the Federal Reserve said short-term rates are not going up any time soon. “The best that happens now is fixed income doesn’t move around much in response to equities versus the usual inverted correlation,” Oldroyd said. “You can determine whether you were too heavily in credit and securitized debt.” He explained that during the COVID-19 pandemic, investors wonder how people are going to pay their car payments, mortgages and credit card debt.

“If something is broken, sell, but if nothing is wrong with the system, think about the long-term and stay put,” Oldroyd said. “I think discussions should be about how to adjust for a brand new market cycle that, I think, is starting now.”

Dislocations in the market, such as what happened this year because of the COVID-19 pandemic, can expose weaknesses in TDFs, Palmer said. There may be tilts and biases within them. For example, he said growth has outperformed value by more than 30%. “The pandemic has identified clear winners and losers, so plan sponsors and advisers might see overweights and deficits in TDFs,” Palmer said. “Never let a good crisis pass us by to help us make things better.”

He said advisers should make sure TDFs are as diversified as they should be in style, and the same thing is true for fixed income allocations in the funds. “This year has taught us to make sure some of the fixed income exposure is in defensive, high-quality, intermediate- to long-duration vehicles or more diversified, all-weather multi-asset solutions,” Palmer said.

As an adviser who speaks to plan sponsors and their investment committees, Hanna said six months is nothing when they consider the long term. “Most of us were not concerned at the plan level or TDF level. It had very little impact. Again, we looked at fit,” he said. He added that he didn’t get a lot of questions from plan sponsors about their TDFs because they were so focused on other impacts to their businesses.

However, Hanna said he did find that he had plan sponsors’ attention about TDFs, and investments in general, for the first time in a long time because there was so much volatility in the markets. He used the opportunity to reiterate to them the importance of making sure glidepaths were appropriate for participants and whether there was sufficient downside protection for those close to end of their glidepath. “They didn’t make a lot of changes, but they listened more,” Hanna said.

The Future for TDFs

Oldroyd said it will take time, but the Setting Every Community Up for Retirement Enhancement (SECURE) Act will have some impact on TDFs, as plan sponsors start to think about in-plan lifetime income. “We are pivoting to what to do with savings once a person gets to retirement,” he said. “There’s been managed payout funds, general income funds, multi-asset income funds, a general concept of options. Guarantees, I think, would be very valuable.”

Oldroyd added that J.P. Morgan Asset Management is exploring combining TDFs with annuities. “We’re looking at how spending needs are going to be variable, using real data about spending in retirement,” he said. “Spending is dynamic so withdrawal rates should be dynamic. We will see more in this space, whether in or next to TDFs.”

Wilshire Funds Management has recently partnered with BNY Mellon for an adviser-facing solution to bring custom TDFs to small- to mid-market retirement plans, Palmer said. “I think it’s going to provide more choice for advisers to create more specialized solutions, and it will better facilitate the inclusion of lifetime income options, which may be coming,” he said.

“We watch, learn and evaluate,” Hanna said. “Sometimes issues that don’t exist are created so solutions built can be marketed, but trusted names will address issues that are there and the industry will embrace them and they will become best practice. I’m excited to watch where it goes.”

«