As 2021 approaches, financial advisers are preparing to discuss important changes—including the introduction of pooled employer plans (PEPs)—with their clients, while making sure plan sponsors are focused on ongoing issues such as financial wellness and health care coverage.

Discussing Pooled Employer Plans

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was a top priority for many plan advisers when it was passed in December of last year. But it was quickly overshadowed several months later by the emergence of COVID-19.

Yet, as 2021 approaches, more employers and financial professionals are turning their attention to some of the SECURE Act’s provisions that will be starting in the new year, including PEPs. These plans are a new retirement vehicle that allow unrelated employers to participate in a single plan and are sponsored by pooled plan providers (PPPs), but they cannot be implemented until January 1, 2021.

“We’re seeing a lot of discussion not just with advisers, but with a lot of participants in the retirement world as it relates to these,” says Jeff Cimini, retirement product manager at Voya Financial.

While multiple employer plans (MEPs), which are similar in many ways, tend to appeal more to small businesses and mid-sized employers, some larger organizations that are looking to lower the costs associated with their plans, reduce their fiduciary burdens or even ease their administrative loads are interested in PEPs.

“The group buying power and outsourcing more of the day-to-day plan administrative functions to a plan to do it for you is why more larger organizations are looking at PEPs,” says Chad Parks, founder and CEO of Ubiquity Retirement + Savings. “There are cost savings, time savings and efficiency, so it could become rather attractive.”

Advisers and their clients will have to work through several details before moving to a PEP, Cimini and Parks note. For example, interested parties need to consider who will act as the PPP and further define what the PPP’s due diligence is and the standards it will be held to.

Focusing on Financial Wellness Education

Christine Stokes, head of institutional and retirement learning and development at Nuveen, says she believes the impacts of COVID-19 will reshape financial wellness packages for many employers. Stokes says some may offer different approaches to the plan.

“Start by looking at health, retirement, student loans and emergency savings accounts all as a holistic offering rather than asking, ‘What’s the health care package? What’s the retirement package? What’s the separate HSA?, etc.,’” she suggests. While health care is a critical benefit—especially as experts say COVID-19 could redefine coverage for plan sponsors—the prioritization of certain benefit packages will change based on the individual participant, she says.

Stokes says she expects to see an increase in financial advisers and plan sponsors offering advice and education. “Providing in-plan advice may or may not include financial wellness tools, but educating employees to make the right benefit allocation decisions depending on their specific life situations is key,” she says. “Having that holistic, critical view of the packages and the benefits in aggregate is critical, and we’ll start to see more of than in 2021.”

As the pandemic illustrated the importance of financial wellness education, experts are recommending advisers discuss proper spending habits with their clients. Parks underlines the importance of such conversations, especially now, since the federal $600 boost in unemployment benefits has ceased. He cites a recent JPMorgan Chase & Co. Institute study analyzing data from nearly 80,000 households that received unemployment benefits. Findings showed that, with the $600 boost, economic spending increased, and unemployed workers grew their checking account balances. When the benefits expired at the end of July, those figures dropped. 

“They showed a very sharp decline in those balances. I was always a bit careful about how and when the next problems might arise, and because this surplus isn’t coming back, we’re getting to the point where this can be a big problem,” Parks warns. “For financial advisers, the main point that we need to carry is to be smart and conservative with your spending.”

On the topic of spending, F. Michael Zovistoski, managing director at UHY Advisors, suggests advisers also alert clients about taxable income on unemployment benefits. The IRS requires unemployment compensation to be reported on the 2020 federal income tax return. Come April 15, those who received unemployment insurance will still owe federal taxes.

Redefining Health Care

COVID-19 has reshaped the health care industry, including health care plans. As a result, more employees are demanding fundamental health care benefits—including health savings accounts (HSAs)—for 2021.

Cimini says more clients, especially those in high-deductible health plans (HDHPs), are interested in HSAs for their flexibility in covering health care while providing retirement security. “Folks are currently tapping into their retirement savings to fulfill some of those unexpected health care needs. This account wouldn’t just be limited to health care, but it can be used in situations like this, rather than tapping into their retirement,” he says.

In return, HSAs can help make health care more affordable and lead to higher retirement savings, Cimini continues. “We feel strongly that these accounts are consistent with better retirement outcomes. Folks would often use their 401(k) for these unfortunate situations, but extending these benefits to HSAs is a strong protection for retirement savings,” he adds.

Still, Parks advises employers to be cautious about their spending, at least for now, as the U.S. enters into a new coronavirus wave in several states. “The reality is that there is still so much uncertainty. Businesses are still suffering, and we are starting to see a second wave,” he says. “If I’m a business owner, I, too, need to be conservative and make sure that I don’t overspend and overextend right now, as much as I want to do better.”

Parks recommends advisers work with their clients to weigh appropriate spending allocations for the new year and determine what would be better to hold off for 2022. “Once we get through 2021, once the virus is under control, once the economy stabilizes and we pass this November election, looking toward 2022 and beyond, the world may change favorably, and people will start to benefit from the wake-up calls we had in 2020 and 2021,” he says.