Products January 23, 2023

Delta Taps Fidelity to Run New Emergency Savings Program

Starting in January, Delta will give eligible employees up to $1,000 toward an emergency savings account if they complete a financial education program.

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Delta Air Lines and Fidelity Investments have teamed up to put into action two trending topics in the retirement plan space: emergency savings funds and financial wellness.

Delta announced on Monday that eligible employees can opt to take an online financial education course and a series of one-on-one financial coaching sessions to earn a $750 kickstart for an emergency savings account. Delta will also match up to $250 for an employee’s contribution. U.S. employees below director level, including pilots, are eligible, and Delta will pay the taxes on the $1,000 it contributes to the account, according to the Atlanta-based company.

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Fidelity will be administering the savings and company matching portion of the program through Fidelity Goal Booster, its out-of-plan short term savings account, according to the Boston-based recordkeeper. The program has similar elements to an emergency savings program Fidelity started with Starbucks in September 2022, but with a keen focus on how to ensure that employees receive useful financial education, says Katie Taylor, vice president of planning and engagement at Fidelity.

“Delta said to us that we want to build this program and yes, incentivize people to open an emergency account, and fund it, but also to educate them in a meaningful way,” she says. “They didn’t want it to just be a check the box, but for [participants] to really get something out of it.”

Participating employees will take an online financial education course of between two and three hours, then choose from three options for their coaching sessions: 1) managing day-to-day saving and spending; 2) strengthening financial foundations; and 3) focusing on future goals.

Operation Hope Inc., an Atlanta-based nonprofit, is also partnering in the program and will provide financial coaches as an option along with Fidelity. In the Fidelity program, employees will participate in a group online session, and then two one-on-one sessions either by phone, or in person with a Fidelity coach, Taylor says.

Employees participating in the program are prompted to set up the goal and open an account with Fidelity that is dedicated to emergencies and funded directly from their paycheck. That investment will go into Fidelity’s out-of-plan emergency savings account through a service called Goal Booster, which is designed to encourage regular savings with celebratory markers along the way, says Emily Kolle, vice president of product management for Fidelity.

“People can feel very negative about their short-term savings, so it helps to bring moments of joy and celebration into that savings journey,” she says.

The goal-driven savings model came out of research showing that it’s hard for people to “set-and-forget” putting aside emergency funds as they do with retirement payroll distribution, Kolle says. “We knew if a person would ‘set and forget’ their retirement savings, they should do the same thing for their emergency funds. But those behaviors weren’t flowing over … we made it easy for you to set up a recurring payment to yourself.”

Emergency savings payroll deduction is only available for plan sponsors who choose to offer the option to employees, according to the company. The Fidelity Goal Booster has no fees for use, and puts savings into Fidelity’s Cash Management account.

The SECURE 2.0 Act of 2022 retirement reform passed with the inclusion of emergency savings plan options, though they will not go into effect until 2024. Financial wellness for participants has also been a focus for recordkeepers such as Fidelity, as well as retirement plan advisers, with new products and offerings coming to market on a regular basis.

These issues were always important for plan sponsors, but the pandemic has made them higher on the list of priorities, Taylor says.

“Before plan sponsors were saying [having a savings fund] is something we need to solve for, but we’re not really sure we can right now,” she says. “Whereas now, this is absolutely a driver of many of the strategic conversations we have with our clients about benefits in the coming years.”

The Markets January 23, 2023

TDF Mutual Fund Flows Jump 35%, With CITs Stealing Growth

Target-date mutual funds were by far the top investment vehicle for retirement savers last year, but new research shows collective investment trust funds may be stealing flows.

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Target-date mutual funds continued to reign supreme among retirement savers last year, but new data shows collective investment trust funds may keep them from regaining the heights of a few years ago.

Retirement savers boosted TDF mutual fund contributions in 2022 at a 35% higher rate than in 2021, well off the negative flows seen in 2020 at the height of the pandemic, according to the latest data from investment research provider Morningstar Inc. Savings inflows to mutual fund TDFs were about $32.3 billion in 2022, up from the $24 billion they drew in 2021. Mutual fund TDFs also captured the biggest share of contributions for 401(k) savers, taking 47% of contributions, more than double those of the runner-up, large U.S. equity funds at 21%, according to separate research from Alight Solutions.

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But while the investment vehicles are still dominant, they are off a 2017 peak of $69.9 billion. This is in part due to the popularity of collective investment trusts, according to Megan Pacholok, a senior manager research analyst for Morningstar Research Services LLC.

“Target-date CITs are only available through defined-contribution plans but have managed to gain market share primarily because of fees,” Pacholok wrote in research released on Thursday. “These offerings typically cost less than their mutual fund counterparts, and some providers are willing to negotiate fees even lower. In recent years, the industry’s increasing emphasis on costs has helped further propel CIT growth.”

At the end of 2021, about 45% of target-date assets were in CITs, up from less than 20% in 2014, Pacholok wrote. Meanwhile, CITs accounted for 86% of target-date strategy inflows in 2021. The researcher noted that because CITs are pooled from retirement plans and maintained by a bank or other trust company, CIT flow data are voluntarily reported and usually lag more regularly reported mutual funds.

Active American Funds Beats Out Passive Fidelity

When it comes to market share, Morningstar found that Capital Group’s American Funds Target Date Retirement mutual fund series took in the most flows in 2022. The TDF provider beat out Fidelity Investments’ Fidelity Freedom Index Series, last year’s winner, as well as third-place finisher Vanguard’s Target Retirement Series. The victory is unique in that American Funds is an actively managed account, the only one represented in the top 10, according to Morningstar’s Pacholok.

“Despite index-based target-date series largely dominating in net inflows, American Funds stands as an exception as it exclusively holds actively managed underlying funds,” she wrote. “As other active-based series struggle to maintain consistent net inflows, American Funds’ competitive price tag and strong performance add to its allure. Over the past 10 years through December 2022, the series, on average, delivered higher returns than roughly 99% of peers.”

Fidelity’s Freedom Index, at No. 2 on the list, had one of the lowest price tags and was one of six index-based target-date funds in the space, according to the report.

Meanwhile, Vanguard came in third despite its fund losing out to the firm’s own CIT version of the investment vehicle. In 2022, Vanguard Target Retirement saw $52.6 billion in net inflows to its CIT series, $40.9 billion more than its mutual fund offering, Pacholok noted.

Trading Up, With Shift to Fixed Income

Overall trading of 401(k) plans was up in 2022, according to the Alight research released on January 12. Net trading activity for the year was 1.27%, as tracked by the information and consulting financial firm. That was higher than 2021’s level of 0.53%, but lower than 2020’s level of 3.52%, according to the firm.

The decline in stocks pushed investors into fixed income options, as led by stable value bond funds (76%) and money markets (15%), Alight reported.

“Throughout the more-than-25-year history of the 401(k) Index, we have seen people increase their trading activity when stocks drop—a trend that continued in 2022,” Rob Austin, head of research at Alight, said in a statement. “More than three-quarters of the above-normal trading days (33 out of 41) happened during the first half of the year when the markets were down by 20%. Trading slowed in the second half as Wall Street tried to rally.” 

401(k) investors remained bullish on equities, with most contributions going to TDFs and large cap U.S. equity funds. However, the equity losses resulted in 401(k) savers ending 2022 with 68.2% of their portfolio in equities, compared to 70.7% at the beginning of the year. 

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