Client Service May 28, 2020

In Times of Stress, Timely Communications Make a Big Difference

New data shows the education and guidance firms are providing is helping individuals to stay the course.

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Because so many 401(k) investors moved out of the market in the Great Recession of 2008-2009, John Hancock Retirement decided that with the coronavirus roiling the markets starting in February, it would use email, its call center and its website to deliver a message to participants about the importance of staying the course, Lynda Abend, chief data officer, tells PLANADVISER.

“From what we learned in the 2008-2009 downturn, we wanted to get ahead of this and support participants with education and guidance,” Abend says. “Towards the end of February, when the markets started dropping, we started delivering content in all the channels we have—email, call center and website—to help folks understand the difference between short-term and long-term volatility and the importance of saving for the future.”

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In March, only a small percentage of participants made an investment change, and it was primarily to move into stable value, Abend says. This mirrored what happened at the outset of the Great Recession, she says. But, in April, these participants started moving back into equities.

“The education and guidance we are providing is helping individuals to stay the course,” Abend says.

As far as distributions are concerned, following the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act at the end of March, participants started to withdraw money from their 401(k)s, Abend notes. The coronavirus-related distributions (CRDs) created under the CARES Act can be drawn from an employer-sponsored retirement plan or from individual retirement accounts (IRAs) in any amount up to $100,000. Under the terms of the CARES Act, the normal 10% penalty tax levied on early plan distributions by the IRS is waived.

“Most have opted for the [CRD], which has favorable tax treatment and can be repaid over the course of three years,” Abend says. “Overall, we are seeing good behavior from participants.”

Drilling down into John Hancock Retirement’s recordkeeping data, only 3% of participants decreased their contribution rate in April. However, coronavirus-related distributions were up 200% in April from the month before.

The number of participants who took loans from their 401(k) decreased in April, but the average loan amount grew by 7% to $12,433.

Compliance May 28, 2020

With E-Delivery Accomplished, a Push for More Retirement Reform

With the electronic disclosure delivery regulation in the bag, retirement industry lobbyists have turned their attention back to the ambitious Portman-Cardin bill, a version of which could soon be introduced in the House.

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Retirement industry advocates scored a major victory last week with the finalization of the electronic default disclosure regulation by the U.S. Department of Labor (DOL).

Largely mirroring the proposed version of the rule, which was put forward last year, the final rule allows employers to deliver retirement plan disclosures to employees electronically by default, with the ability for plan participants to opt in to paper mailings if preferred. The leadership at the DOL says this measure will reduce printing, mailing and related plan costs by an estimated $3.2 billion over the next decade. The rule will also make disclosures more readily accessible and useful for participants, they say, while preserving the rights of those who prefer paper disclosures.

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Chris Spence, director of federal government relations at TIAA, says the timing of the final regulation should be helpful as retirement plans deal with the effects of the coronavirus pandemic.

“One of the important changes made to the final rule versus the proposal from last year is that the new safe harbor for doing default electronic delivery is made available immediately,” Spence says. “Originally, the effective date was to be 60 days after publication in the federal register, which just happened a day or two ago. This means that sponsors can rely on the safe harbor as they prepare their next quarterly statements.”

Spence says the government’s projected savings figures seem reasonable, pointing to the results of a recent SPARK [Society of Professional Asset Managers and Recordkeepers] Institute analysis that pegs the potential annual savings in the range of $250 million to $400 million a year. He is also in the camp that believes electronic disclosures should inspire more participants to get engaged with their plan providers’ websites, which contain many helpful planning tools and calculators.

“We feel the final rule will help people engage with various digital resources,” Spence says. “Providers have worked very hard in recent years to strengthen the digital experience, and I think that will help participants save more and make better decisions overall. That point has been a big part of our conversations with Congress about electronic delivery.”

Spence said he feels electronic disclosures will also be much timelier from the perspective of tracking performance and returns.

“When people are getting paper statements, especially during periods of significant market volatility, that information can already be quite stale,” he observes. “The digital approach offers the freshest possible information.”

Stepping back, Spence says his focus has shifted from electronic delivery to the implementation of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which continues even as the coronavirus pandemic raises significant challenges for employers and plan providers alike.

“The SECURE Act is now law, but the actual implementation of its many provisions remains a big lift,” he says.

Additionally, Spence and his Washington-focused peers are turning their attention back to the Retirement Security and Savings Act, proposed by Senators Rob Portman, R-Ohio, and Ben Cardin, D-Maryland. Spence says the Portman-Cardin bill is “very complementary to the SECURE Act.” While near-term passage of the bill seems unlikely, it is possible, especially given that some members of the House of Representatives are working on their own version of the legislation behind the scenes.

Of the many provisions that would make changes to employer-sponsored retirement plans and individual retirement accounts (IRAs), lobbyists and analysts are keen on an additional catch-up provision that would permit those over the age of 60 to save an additional $10,000 each year in their 401(k) plans. Another provision would provide for the indexing of IRA catch-up contributions, which are currently set at $1,000 and do not change—unlike other limits that are indexed for inflation. Furthermore, the law would also make two changes to “SIMPLE IRA” plans, or savings incentive match plans for employees. The first would permit employers to make additional contributions on behalf of workers, and the second would permit these plans to offer Roth contributions.

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