According to Chris Whitlow, CEO at Edukate, 2019 will likely bring a continued focus on student loan repayment programs, automatic rollover implementation, and consumer-based financial products.
“Financial wellness has made an evolutionary change from being content-driven to being more about taking specific actions,” Whitlow says.
He says employees have always had many sources of financial stress, but now employers are embracing the fact that employees can be very different from one another in terms of their financial wellness needs. This drives an important question for retirement plan fiduciaries to ask in 2019: How can we deliver the various solutions necessary for them to take action?
Drew Carrington, senior vice president, head of institutional defined contribution (DC) at Franklin Templeton Investments, agrees with that assessment, noting that student loan debt repayment seems to be quite a hot topic for 2019. He pointed to the private letter ruling issued earlier this year by the IRS as adding fuel to the fire. The ruling came after a 401(k) plan sponsor requested approval for its proposal to amend the plan to provide student loan repayment non-elective contributions without violating the “contingent benefit” prohibition of section 401(k)(4)(A) and section 1.401(k)-1(e)(6) of the Income Tax Regulations.
Carrington says such a feature can be of interest to younger employees, mainly those who aren’t currently taking advantage of the 401(k) match to participate. Even if employees abstain from participating in the 401(k), these workers are paying down debt to achieve financial wellness. In fact, he says, there is emerging evidence that allocating dollars to student loans can spearhead future savings—including tax-qualified savings for retirement.
“Employers view it as another way to try and improve not only retirement readiness, but this broader, more holistic financial wellness concept,” Carrington explains. “We view the trend towards financial wellness not as competing with 401(k)s, but really as improving overall retirement readiness.”
Automatic features still in vogue
Automatic enrollment and auto-escalation will continue to be widely implemented in 2019, according to Brigen Winters, principal at Groom Law Group. He ties the ongoing popularity to long-standing market forces established by the Pension Protection Act, but also to recent changes made in the tax code to nondiscrimination safe harbors. He expects continued interest in automatic plan features throughout 2019.
“We are also monitoring and talking with plan sponsor clients about various legislative proposals that would further adjust the auto-enrollment and escalation rules, including the caps, and related safe harbors,” he says.
Plan fiduciaries may also see changes to Department of Labor (DOL) guidance on auto-rollovers. Instead of participants leaving a prior plan balance with their former employer, setting up an automatic program—where the 401(k) balance follows the worker—enables higher savings while reducing small balance cash outs, Carrington says.
“The likelihood that someone cashes out their 401(k) plan falls dramatically once their balance goes over $10,000,” he says. “If we can get them to rollover a couple of plans to reach this figure, suddenly they are much less likely to cash out.”
The future of fiduciary and financial wellness
Winters believes that even if the DOL fiduciary rule is really gone for good, Congress may introduce and implement reform legislation for plan sponsors. If not in the upcoming year, then perhaps in 2020.
“I think it’s certainly possible that Congress will pass and the president will sign bipartisan, comprehensive retirement reform legislation in the near future,” he says. “There is pent-up demand for a retirement bill and a number of bipartisan proposals are in the mix as Congress works to finish up its work during the lame duck session and prepares for the 116th Congress.”
Behind student loan repayment programs, auto-rollover modifications and fiduciary standing lies a common theme for this upcoming year retirement industry—action-based financial wellness.
“Employers are starting to recognize that as a single entity, they do not necessarily have all of the financial benefit capabilities to service their employees’ needs,” Whitlow says. “So, we’re seeing employers really think outside of the box and partner with providers, say their local credit union, to deliver some type of emergency savings product. They need to consider how they’re going to take action, and the data around the employees. What are the little things that employers can be doing to take control of the financial wellness surrounding the company?”