Retirement Advisor Council Blog

Advisor Q&A: Courtenay Shipley Brings Creative Fuel to the Retirement Industry

Retirement Advisor Council Board President Courtenay Shipley, Founder and “Chief Planologist” at Retirement Planology, talks about her unique perspective and what fuels her passion for the industry

Benjamin Franklin once said, "If you want something done, ask a busy person to do it.” That explains a lot about shipley cCourtenay Shipley, Founder and Chief Planologist at Retirement Planology, a consulting and investment advisory firm dedicated to helping organizations make smart decisions about their employee retirement plans. She juggles that role, family responsibilities, and many others every day. Moreover, her commitment to the retirement industry and helping Americans retire with dignity and financial surety never waivers.

Currently, Shipley serves as the Board President of the Retirement Advisor Council (RAC). The Council advocates for successful qualified plan and participant retirement outcomes through the collaborative efforts of experienced, qualified retirement plan advisors, investment firms, asset managers, and defined contribution plan service providers. As her tenure as RAC Board President draws to a close, we took the opportunity to ask her a few questions about the Council, the industry, and what she sees for the future of both.

Q: You have been active in the retirement industry for some time. You’ve been recognized by Financial Times Top 401 Retirement Plan Advisors annual list, named a Top Women Advisor All-Star by the National Association of Plan Advisors, and named a 2018 NAPA Young Gun: Top 75 under 40. What fuels your passion for this industry?

A: From the moment I stepped into this industry over 20 years ago, I found it was a perfect place for my skills and expertise, and I believed I could make a difference. I founded Retirement Planology with a focus on the 'smid' market—small and medium-sized businesses, with our sweet spot being those with 500 employees or less. Our client base is diverse, spanning across industries, non-profits, for-profits—the whole spectrum. Our clients are growing companies dedicated to making thoughtful business decisions, especially about their retirement plan. Working with this size of organization allows us to foster a more holistic relationship with leadership for value creation, and with the employees.

Q: What are your clients asking for and are those questions leading indicators for the industry itself?

A: We've been having refreshing discussions about retirement plans and financial education lately. We are moving past the so-called 'latte effect'—the idea that giving up a $4 latte could magically fund your retirement plan. Hint: no one wants to give up anything to save in their plan! But the combination of the Pandemic and inflation has flipped the focus on life and money. It’s about empowering folks to think about what truly matters to them, choosing where to spend their money, while ruthlessly cutting back on things that don’t matter as much. If that latte is your daily joy, that's fantastic! Let's work to ensure you'll have the funds to savor it in retirement, too. It's all part of a fresh perspective on retirement plans, woven into the fabric of a broader financial conversation.
The retirement plan is one piece of a puzzle—the comprehensive benefits program. Let’s talk data because that’s what everything leads back to now! Enter the HRIS systems, the unsung heroes in the world of compiling and managing that data--the central hub for performance management, providing valuable feedback to management while tracking trends and spotting opportunities. In this hiring environment, everyone wants engaged and motivated employees, boosted retention rates, and constrained budgets well spent. Cutting edge retirement advisors leverage that data to help with plan design, communication, education, and reporting. Plan Sponsors want effective benefits and now seek an elevated level of support from their trusted consultants and advisors to serve the big picture.

Q: Your perspective is unique. What fuels that?

A: My background is different than most advisors; in college, I majored in music performance. This education and experience have uniquely equipped me and our team to understand the intricate interplay of content, context, and composition. That symphony also applies to how I see our industry. I am analytical. I see the details. But, true to my training and education, I see the big picture as well. Creative thinking fuels creative plan design which fuels business value. Whether it's crafting strategic approaches to total compensation packages, employee retention programs, or optimizing retirement plans and HSAs, each of these components forms a crucial piece of the larger, harmonious whole.

Q: You’re very involved in the Retirement Industry more widely as well. What drew you to the Retirement Advisor Council in particular?

A: While our industry is full of associations, events, and organizations, each carrying its own significance, The Retirement Advisor Council stands out as unique. It distinguishes itself through a genuine spirit of collaboration and ongoing conversation within its membership. Notably, the Council operates with a distinctive approach: the membership actively shapes and molds the in-person meetings and virtual sessions. There is no predefined agenda. The content of every meeting and event is set by the membership.

Q: How specifically does the membership of the Council as you said, “shape and mold” the direction and content of RAC events and activities?

A: The Retirement Advisor Council serves as a hub for industry conversations—discussions that delve into the future direction of our field, the current pulse of the marketplace, emerging trends, and the challenges that professionals are encountering. Our focus is on Retirement Plan Advisors deeply committed to their clients, their clients' businesses, plan participants, and the refinement of their practices. Membership to the Council is by invitation only, and my mission has been to amplify those voices—the thought leaders, thought-sharers, and influencers—bringing them to the table with our partner service providers in the business to make a difference.

We maintain a year-round connection, extending beyond our two semiannual in-person meetings, fostering a vibrant and engaged community. My efforts have been centered on reinvigorating the mechanisms that facilitate our collective work. At the heart of this is a call for all members to actively participate in committees; each with specific and diverse goals. From meeting planning, agendas, and government affairs to research, strategic initiatives, marketing and PR, advisor tools, and financial literacy -- committees form the backbone of our collaborative efforts and thought leadership.

Q: Financial Literacy. That is certainly a hot button these days. What does the Retirement Advisor Council Financial Literacy committee do?

A: In 2022 we surveyed the Council and found that by a large margin, financial literacy was critically important to RAC members. We also discovered two things: Financial Wellness Programs are not the endgame – financial literacy really starts young and in schools. And second, grassroots efforts on the local level are clearly the most impactful.

Recognizing the pervasive impact of financial literacy, RAC launched FinLitFuture$ ( We shifted our focus from giant, national programs to making a local difference. FinLitFuture$ is a collaborative endeavor organized by the Council, rallying the collective volunteer and advocacy efforts of members of the retirement industry. Our shared commitment revolves around advancing financial education in schools and community programs. We’re proud of this initiative. We look forward to seeing the results for 2023/24 and set the goals for the next stage. All the credit goes to our incredible Financial Wellness and Education Committee – they did an awesome job!

Q: What is next for you on the Council in 2024?

A: I plan to continue to support the Council and of course, incoming president Alex Assaley. I’m sure the transition will be seamless!

Interactive map from the Center for Retirement Initiatives at Georgetown University’s McCourt School of Public Policy keeps plan sponsors and their advisors abreast of state-by-state retirement innovation (click on map to visit interactive map website).

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47 states have taken steps since 2012 to bridge the retirement plan coverage gap among small and micro employers.  Some have already implemented a mandate, others are in the throes of considering legislation.   Enhancing coverage is a worthwhile social goal, and an objective that the Council supports.   Retirement plan sponsors and their advisors will find a wealth of resources and an interactive state-by-state map to track progress and the specifics of already-enacted state programs HERE on the website of The Center for Retirement Initiatives at Georgetown University’s McCourt School of Public Policy.

You can also follow the work of the Center for Retirement Initiatives on LinkedIn

Jacquelyn K. Reardon, RMA® 
Vice President – Head of CX for Retirement, Insurance, 529, & Wealth Management
Franklin Templeton

Franklin Templeton’s Voice of the American Worker study, now in its third year, uncovered some interesting new trends and also a reversal in others that had taken root during the COVID-19 lockdown period. One thing that’s clear is workers today are feeling more financial stress and concern, which also has implications for employers.

5 23 blogThe Voice of the American Worker annual survey, conducted by The Harris Poll on behalf of Franklin Templeton, is connected to Franklin Templeton’s Retirement Innovation Initiative (RII), which launched in January 2020. RII’s mission is to bring together industry experts who share the same vision—improving the future of retirement in the United States. The survey respondents represent a snapshot of the US workforce: across the country, across industry, and across generations and backgrounds.

Throughout the last three years, some evergreen trends have been reconfirmed year over year:

  • Workers continue to seek improved well-being and need support in addressing existing roadblocks.
  • A focus on well-being continues to include urgency in improving financial health with key opportunities for employer support.
  • Workers remain more focused on financial independence than traditional retirement.
  • There has never been a more urgent time for employers to evaluate their benefit offerings and consider ways to evolve how employee needs are supported.

Financial independence remains a top priority.  

If financial independence is defined as “having enough income or wealth sufficient to pay one’s living expenses without having to be employed or dependent on others”, the path to achieving financial independence will not look the same for everyone.

Survey finding: All in all, regardless of the current economic or workforce environment, employees continue to view financial independence as their primary north star. This year, 74% stated financial independence is their top financial concern, up from 69% in last year’s study. In addition, 81% of respondents said they are more focused on becoming financially independent. Among other concerns, the next most important was paying off debt (61%), which was up 7% since last year. That is not surprising given that US credit card debt levels just hit a 20-year high.

Action item for employers: We as an industry and employers have a key opportunity to engage employees across the full spectrum of financial aspects and provide holistic support in helping employees reach financial independence. Three-quarters (77%) of survey respondents said they’d be more likely to participate or contribute more to their retirement savings if there were more personalized 401(k) investment options, and they are seeking access to advice. They want access to a financial advisor, they want auto-enrollment, tax guidance, budgeting and debt guidance.

The Voice of the American Worker study was conducted by The Harris Poll on behalf of Franklin Templeton from October 17 to October 27, 2022, among 1,000 employed U.S. adults. All respondents had some form of retirement savings. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. Findings from 2020 reference a study of a similar nature that was conducted by The Harris Poll on behalf of Franklin Templeton from October 16 to 28, 2020, among 1,007 employed U.S. adults, and findings from 2021 reference a similar survey conducted among 1,005 employed adults from October 28 to November 15, 2021.Franklin Templeton is not affiliated with The Harris Poll, Harris Insights & Analytics, a Stagwell LLC Company.

For additional information, please contact the Franklin Templeton Workplace Retirement team at (800) 342-5236, or visit 


This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the author and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this presentation has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

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Nick Gage, CFA
Senior Principal
Galliard Capital Management
blog 5 12 23

While they share a common investment objective of principal preservation, stable value and money market funds utilize fundamentally different approaches to achieve that objective, providing stable value funds a significant advantage when it comes to long-term returns. Whereas money market funds invest solely in short duration assets, stable value funds typically invest in a diversified portfolio of short- and intermediate-term fixed income securities through the use of investment contracts. As a result, stable value funds provide investors a unique opportunity – available only through tax-qualified defined contribution plans – to protect principal while also earning consistent yields and bond-like long-term returns.

Stable value investment contracts

A stable value fund’s investment contracts are designed to allow typical participant transactions to be made at the contract’s book value, regardless of the price fluctuations reflected in the market value of its underlying fixed income securities. The interest rate credited by the contracts is guaranteed by the issuer to be no less than 0%. The types of stable value contracts most commonly utilized in diversified stable value funds also allow investors to benefit from the performance of the underlying investments, smoothing their returns over time via the credited interest rate.

Low Return Volatility

Due to their contract value accounting, stable value investment contracts allow managers to invest in short- to intermediate-term fixed income securities while insulating participants from return volatility associated with market behavior. Stable value funds have historically delivered higher long-term returns with return volatility comparable to money market funds, which typically invest in shorter duration government securities, certificates of deposit, commercial paper, or other liquid, high quality securities.

CURRENT Interest Rate Environment

In the current interest rate environment, in which short-term interest rates have risen significantly and the U.S. Treasury curve is inverted, stable value funds may be at a near-term disadvantage to money market investments with respect to yields – particularly, existing stable value funds that have provided their investors protection from recent mark-to-market losses due to rising rates. However, stable value funds’ ability to invest in longer maturity assets diversified across the investment grade sectors of the bond market provides a more robust, diversified source of yield than that of a money market fund and a critical source of additional return to meet its long-term objectives.

Long-Term Performance Advantage

With the advantage of investing in longer maturity assets, stable value funds have historically provided excess long-term annualized returns of approximately 100 to 200 basis points (1.00% to 2.00%) versus money market funds and have also provided a rate of return that has kept pace with the long-term rate of inflation. While they are not designed to hedge inflation – which reached historically high levels in the last year, stable value funds have historically demonstrated an ability to preserve savers’ purchasing power over their savings plans’ longer term investment horizons. Stable value funds have a demonstrated track record of providing attractive returns, while also providing the daily principal protection and liquidity that investors value, whether they are growing their savings or seeking a stable source of income during retirement.

Blog2By Zorast Wadia CFA, FSA, EA, MAAA CFA, FSA, EA, MAAA - Principal, Consulting Actuary at Milliman

Nine considerations for corporate plan sponsors after the passage of the American Rescue Plan Act of 2021

Interested to  add value to your clients helping them with their DB plan?  Register HERE for Growing Your Business With Pension Plans June 30, 2021 at 3 p.m. Eastern.  

The COVID-19 pandemic has caused tremendous hardships for people and businesses alike. Plan sponsors of defined benefit (DB) pension plans certainly were not spared from the business and financial impacts of COVID-19. They simultaneously had to deal with burgeoning cash contribution requirements as interest rate relief provisions were scheduled to wear away starting in 2021. With financial markets declining rapidly in the first quarter of 2020 and many businesses ceasing normal operations, it appeared that plan sponsors were headed toward the eye of the perfect storm. 

Fast forward to nearly 12 months later: with the passage of the American Rescue Plan Act of 2021 (ARPA) on March 11, 2021, plan sponsors were extended a new lifeline. The rules of pension funding for single employer pension plans as we had all become accustomed to for nearly the last decade and a half have undergone a complete overhaul. Just as the U.S. economy hit the financial reset button and came out of 2020 with a record recovery, corporate pension plan sponsors now get to revitalize their pension funding—the key difference being that the corporate defined benefit plan funding resurrection is expected to last through the rest of this decade!

It is important to appreciate how ARPA brings about landmark changes to pension funding for corporate plan sponsors. Much flexibility in the application of ARPA is available to plan sponsors, and the impacts of the funding relief and timing of the start of the relief should be examined. What is also of significance are the peripheral effects of ARPA on pension plan accounting, Pension Benefit Guaranty Corporation (PBGC) insurance premiums, asset allocation, and pension risk management strategies. This article summarizes nine considerations for corporate plan sponsors in light of the passage of ARPA.

ERISA funding and plan sponsor elections

To understand the impact on ERISA funding, we need to first examine how the rules changed. The two main funding relief components of ARPA were an extension of interest rate smoothing and a restart and extension of funding shortfall amortization bases. This is further summarized below.

Interest rate smoothing

ARPA provides for the use of higher segment interest rates used to calculate pension liabilities for minimum funding purposes and benefit restrictions. It preserves the stabilization effects of interest rate smoothing as follows:

  • The 10% interest rate corridor surrounding the use of the 25-year average segments rates under prior law is reduced to 5%, effective in 2020.
  • A 5% floor would be placed on each of the 25-year segment interest rate averages.
  • The phase-out of the 5% interest rate corridor is delayed until 2026, at which point the corridor would increase by five percentage points each year until it attains 30% in 2030, where it would stay.

Extension of funding shortfall amortization bases

ARPA will lower plan sponsor costs as follows:

  • All current shortfall amortization bases for prior plan years (and all shortfall amortization installments determined with respect to such bases) shall be reduced to zero (“fresh start”).
  • All new shortfalls would be amortized over 15 years, rather than seven years under the prior law.

For starters, it is worth noting that the interest rate smoothing provisions under ARPA are more expansive than the previous interest rate smoothing provisions allowed under the Moving Ahead for Progress in the 21st Century Act passed in 2012 due to the compression of the interest rate corridor. Also, the interest rate floor in particular is meant to ensure stability and predictability on a longer-term basis, so that interest rate variations do not create excessive volatility. The higher interest rates under ARPA will lower the resulting plan liability and normal cost used in minimum funding requirement calculations. Moreover, with respect to the funding relief related to amortization bases, not only did ARPA more than double the amount of time that plan sponsors have to fund their shortfalls (the excess of accumulated liabilities over plan assets), but they now get to restart their efforts. All prior amortization bases that were established on a seven-year amortization schedule are eradicated under ARPA.

Besides the intrinsic relief attributes of ARPA, there are more plan sponsor privileges in terms of an inception date. Plan sponsors get the opportunity to retroactively apply the relief provisions of ARPA dating back as far as the 2019 plan year; one year earlier than the onset of the COVID-19 pandemic! Employers may have reasons to first apply ARPA at a later point in time than 2019 such as for the 2020, 2021, or 2022 plan year. Pros and cons of these options will have to be laid out alongside multiyear cost projections in many cases. The final plan sponsor elections will likely be based on consultation and guidance from various sources including plan actuaries.

The combined effect of interest rate and amortization shortfall relief is expected to be profound for many plan sponsors, especially those with plans facing current funding shortfalls. The retroactive start applications of ARPA will allow plan sponsors to “go back in time” and revise historical 2019 and/or 2020 actuarial valuations. A plan sponsor may choose this approach in order to lower its prior minimum required contributions. The reduction in minimum required contributions may be recaptured by the plan sponsor through the creation of prefunding balances. These prefunding balances can be accumulated to the present 2021 year, reflecting the favorable investment performance of 2020, and then be used to further reduce required cash contributions in 2021 and future years.

Besides the potential for immediate cash relief, many plan sponsors will find that their contribution projections are significantly lower during the next several years relative to what they were under prior law. The minimum contribution reduction effects are even more resonant for frozen plan sponsors, who could see their requirements decrease by more than 50% over the short term. Furthermore, by the time interest relief under ARPA begins its wear-away period in the year 2026, the effect for many plans could be muted given the potential for asset build-up over the next five years, assuming that plans meet their return expectations over this period.

Unintended prefunding balance consequences

Retroactive application of ARPA certainly can bring about benefits for plan sponsors. However, care must also be exercised so as to not be left with unintended consequences. Based on good faith interpretation of the relief under ARPA—Internal Revenue Service (IRS) regulations have not yet been issued—it is thought that excess contributions can be used to create prefunding balances. But these balances may not necessarily be available for immediate use in an intended year if the plan does not meet an adjusted funded ratio of at least 80%. Also, while it is possible to create a larger prefunding balance by revising the 2019 plan year valuation, the resulting balance available for the 2021 plan year may not be as large as initially envisioned if a plan sponsor is required to forgo some of the balance.

Mandatory forfeitures are required for plans that have accelerated forms of distribution and the ability to reach 80% funding by writing off some or all of the existing prefunding balance. In addition, by creating a larger prefunding balance based on retroactive application of ARPA, it is possible for a plan to trigger the requirement for a PBGC 4010 filing. This is because the PBGC 4010 filing threshold test requires plan assets to be offset by a plan’s prefunding balance. This would certainly be an undesirable consequence for a plan that had previously cleared the exemption threshold for the PBGC 4010 filing under application of the prior law.

Lastly, as long as a plan has a funded status below 100%, the existence of a prefunding balance actually serves to increase its minimum funding contributions due to the technical rules that must be adhered to in setting up shortfall amortization bases. Therefore, plan sponsors will want to work in concert with their pension actuaries to carefully determine the optimal starting point for the application of ARPA relief (2019, 2020, 2021, or 2022).

Cash contributions and tax deductibility

Funding ratios and projected minimum cash contribution requirements are just one aspect of this multifaceted coin. Clearly, plan sponsors that will strictly fund their plans to the level of minimum cash requirements will not get the benefit of higher tax deductions relative to funding beyond minimum cash requirements. While many plan sponsors have been accustomed to only funding minimum cash requirements in the years leading up to ARPA, due to business or other cash flow constraints, they should reevaluate their funding strategies now given the newly minted relief provisions.

In addition, some plan sponsors may want to redouble their contribution pledges should federal tax policy change. While a record stimulus package was passed under the Biden presidency, there is consternation about how the relief provisions will exactly be afforded. Should U.S. fiscal policy result in corporations being more heavily taxed than under current law, some plan sponsors may choose to begin making larger cash contributions to capitalize on the tax deductions. In fact, we saw this behavior in response to the Tax and Job Cuts Act of 2017 passed during the Trump regime, when plan sponsors accelerated cash contributions just prior to the application of lower corporate tax rates. For reference, Milliman's 2021 Corporate Pension Funding Study reported a plan sponsor contribution spike of $61.8 billion during 2017 compared to $34.6 billion in 2020 for the plans of the largest 100 U.S. publicly traded corporations.1

Benefit restrictions and other triggers

While ARPA did not necessarily change the cost of pension plan funding, it did alter contribution timing. The new funding rules allow longer periods of time for plan sponsors to make up funding deficits. Relative to prior law, this means that pension plan funded percentages will take longer to improve over time on average. Certain funded status thresholds have key importance under pension funding rules and plan sponsors may want to adjust their funding strategies accordingly as they near these thresholds.

For example, plans that are funded below 60% are required to freeze benefit accruals. The changes to interest rate smoothing with ARPA mean that plans that are funded below this mark now have the opportunity get over this hump sooner and with the potential of contributing less than needed under the prior law. The same logic can be applied to plans that are below the 80% and 100% funded status thresholds. Getting above 80% can help plans to avoid imposition of benefit restrictions on accelerated forms of payment such as lump sums. Payment of lump sums can be an important feature in a plan sponsor’s overall de-risking strategy as is discussed later. Funding over 80% could also allow for usage of prefunding balance in lieu of cash contributions in a year where cash funding may present a particular sponsor difficulty. Furthermore, not meeting the 80% funding threshold also carries other consequences. At-risk valuations, for example, could accelerate funding requirements.

Lastly, the 100% funding threshold could be an important consideration when determining a plan’s shortfall amortization base, a key component of a plan’s minimum required contribution, as noted above. The takeaway here is that there may be opportune times for plan sponsors to make contributions above ARPA minimum requirements as their plans near certain key funded status thresholds. Again, this should be highlighted by the plan’s actuary.

PBGC premiums

PBGC insurance premiums consist of a flat dollar premium and a variable rate premium (subject to a cap). The variable rate premium is based on a plan’s funded status, without the reflection of smoothed interest rates as allowed under ARPA. This means that if a plan sponsor chooses to make lower contributions (as allowed under ARPA) then they will often be required to pay a larger PBGC premium. Plan sponsors will need to weigh reduced minimum funding requirements under ARPA with increased PBGC insurance premiums. Under ARPA, plan sponsors have roughly double the time to making up for underfunding relative to prior law, but this would result in paying higher PBGC premiums for longer. Irrespective of the higher insurance premiums, plan sponsor contributions overall will be lower under ARPA, assuming of course that plans meet their annual return expectations. For plans paying PBGC premiums out of plan assets, the premiums are already a factored component of the plan’s minimum required contribution calculation.

Another mitigating factor to consider is the application of the PBGC variable rate premium cap, which is a function of the total number of plan participants. For significantly underfunded plans, as long as the variable rate premium cap applies, plan sponsors are protected from the larger variable rate premiums that would otherwise apply. As a plan’s funded status improves and the plan is no longer subject to the variable rate premium cap, the plan sponsor may want to consider accelerating its funding to lower the overall insurance payment. A common tactic for plan sponsors near full funding on a PBGC basis is to evaluate the benefits of additional funding in order to completely avoid paying a variable rate premium.

Pension accounting expense

While investment returns sharply rebounded and ended the year well ahead of expectations in 2020, discount rates fell sharply. That resulted in a mixed bag for plan sponsors for purposes of determining pension expense in 2021. For plans with longer durations and more cash flows sensitive to interest rates, the drop in the pension discount rates will likely result in a pension expense increase in 2021 relative to 2020. On the other hand, plans with shorter durations may find their liability losses offset by their asset gains in 2020 and thus may experience a reduction in 2021 pension expense compared to 2020. Either way, the one variable component of 2021 pension expense that plan sponsors can still influence is the expected return on assets.

Plan sponsors may want to consider making voluntary contributions in 2021 in order to increase the expected return on assets component of pension expense, thereby lowering the pension expense impact in 2021. Higher pension contributions in 2021 will also help to boost pension funded status as measured at the end of the 2021 fiscal year, which is a determinant for the 2022 fiscal year pension expense. Of course, the reduced funding requirements under ARPA will generally result in an increase in pension expense for sponsors who contribute less cash and/or use prefunding balances. For plan sponsors concerned about the long-term impact on pension expense as a result of the lower projected cash funding requirements under ARPA, multiyear accounting projections should be examined in addition to funding projections.

The passage of ARPA also necessitates the reexamination of pension risk management strategies. The remaining considerations will focus on popular pension risk transfer techniques, which have been rising in frequency over the past decade. Pension de-risking via asset allocation and glide path techniques will also be discussed.

Incentives for de-risking via window programs

Window programs have been used by plan sponsors for decades to accomplish human resource objectives during various business cycles and to meet long-term plan sponsor risk objectives. Windows are required to be voluntary and compliant with nondiscrimination requirements, and they are often executed over a short period of time such as 45 or 60 days (although the entire window administration process will take much longer depending on the extent of employee communications, data quality, and plan complexity). A couple of window strategies that are worth plan sponsor consideration include early retirement incentive windows and lump sum windows.

The COVID-19 pandemic can affect retirement patterns in different ways, including accelerating early retirement in some cases and contributing to delayed retirement in other cases. Employers in certain industries may be facing aging workforces who tend on average to defer retirement to later ages. The pension plan combined with an early retirement window can be used by a plan sponsor as a workforce management tool. Early retirement windows may include pension benefit incentives such as granting additional years of service or lower reduction factors applicable for earlier benefit commencement. Current IRS funding rules under the Pension Protection Act state that if a plan is funded below 80% at the time an amendment is adopted, any additional costs related to that amendment will require immediate funding (instead of amortizing the cost over 15 years as allowed under ARPA). With the extension of interest rate smoothing and the retroactive application of ARPA, the 80% funding threshold may be more in reach for plan sponsors now than ever before to execute window offerings.

Lump sum window offerings also continue to be widely used by plan sponsors in transferring longevity risk onto plan participants, and they don’t come with the hefty premiums associated with third-party liability transfers to insurance companies. In order for plans to pay lump sums without any benefit restrictions, they need to be funded above the 80% level. Similar to the early retirement window narrative, plans may now be in a better position to execute these strategies with the passage of ARPA and the associated higher funding levels.

Another added benefit of window strategies is that they reduce a plan’s participant count, which could result in PBGC premium savings for plans where the variable rate premium is limited by the per participant premium cap. With the slower funding progression expected under ARPA, plans could be limited by premium caps longer than under prior law. Thus, incentive windows can be explored that would bring about additional cash savings to plan sponsors under ARPA.

Asset allocation

With ARPA bringing about transformational funding relief for plans, it is a good idea for plan sponsors to revisit their plan asset allocations to make sure their funding and investment policies are in sync. The relaxed minimum contribution requirements under ARPA allow plan sponsors to take longer-term views toward pension de-risking. As such, plan sponsors may want to take on less risky investments and consider the adoption of liability-driven investment strategies, if they have not done so already. Prior to ARPA, many plan sponsors had significant funded status deficits, and with interest rates steadily declining in 2019 and 2020, the possibility of shifting assets from equities to fixed income may have not have been palatable. Plan sponsors would not want to lock in underfunding by taking on greater fixed income positions, given the cascade of upcoming required contributions that they would have faced prior to ARPA.

With funded ratios immediately improving under ARPA and minimum required contributions significantly muted over the next several years, shifting asset allocations from equities into fixed income seems like a viable alternative again. Many plan sponsors had already been doing this via glide path strategies adopted well before the passage of ARPA. For those plan sponsors, further progression down the glide path toward full funding is very likely to continue.

Pension buyouts and plan termination

Even with the business disruptions caused by COVID-19, pension buyout activity continued to occur in 2020. In fact, the 2021 Corporate Pension Funding Study revealed that pension risk transfers (including pension buyouts and lump sums) for the largest 100 U.S. plan sponsors of defined benefit plans totaled $15.8 billion in 2020, which represented an increase from the $13.5 billion recorded for 2019. While the passage of ARPA will not affect the costs of annuity purchases and plan terminations, the general improvement in ERISA funded status may cause some plan sponsors to reevaluate their pension risk transfer strategies.

With the costs of maintaining a frozen plan significantly decreasing over the next several years due to lower minimum required contributions, some plan sponsors may decide to choose a plan hibernation strategy over annuity purchases and plan termination. Continuing along the pension glide path to full funding and letting the plan run its natural course by paying out benefits to retired pensioners over time can offer cost savings to plan sponsors relative to third-party risk transfer strategies. After the ERISA full funding threshold is crossed, immunization investment strategies can lock in surplus sufficient for the elimination of contributions and the minimization of PBGC premiums. Upon this juncture, a plan sponsor can decide to further ride out its pension plan naturally once the ongoing costs are essentially covered, or terminate the plan depending on its risk and financing preferences. Terminating a pension that is already in a position of funding surplus will certainly be less costly than doing so for a plan with a funding shortfall.

In conclusion, despite the current uncertainty caused by the COVID-19 pandemic, there is renewed hope for defined benefit pension plan sponsors. This article touches on the numerous considerations and pathways for plan sponsors to follow going forward under the passage of ARPA. Every plan sponsor has its own unique set of circumstances to examine under the lens of ARPA. Ultimately, the decisions on whether to proceed with further pension de-risking will depend upon what level of risk is appropriate, including a plan sponsor’s risk tolerance and expectation for the future. We know that the future is a whole lot brighter for plan sponsors now with the passage of unprecedented funding relief under the American Rescue Plan Act of 2021.

This article first appeared May 18, 2021 on Milliman's website at

1Wadia, Z., Perry, A.H., & Clark, C.J. (April 2021). 2021 Corporate Pension Funding Study. Milliman White Paper. Retrieved May 9, 2021, from


By Richard W. Rausser, Senior Vice President of Client Services at Pentegra

Although not available until January 1, 2022, for plan years beginning after December 31, 2021, Groups of Plans (GoPs) can reduce administrative burdens and costs. GoPs will probably be even easier to establish than MEPs and PEPs. It’s not too early to start thinking about your role as an advisor to both your existing clients and prospective clients. As an advisor, you know what types of plans your clients have and what their needs are. It may make sense to bring a group of small employers together to form a GoP, or put a new plan into an existing GoP.


The SECURE Act (Setting Every Community Up for Retirement Enhancement Act) of 2019 was designed to make retirement savings easier for employees and the employers who sponsor their retirement plans. SECURE generated a lot of interest as it created a new type of retirement program – Pooled Employer Plans or PEPs – and eased the regulations for Multiple Employer Plans (MEPs). SECURE also provided for a new type of plan called a “Group of Plans” (GoP).

Although not available until January 1, 2022, for plan years beginning after December 31, 2021, GoP provisions are found in Section 202 of the SECURE Act. A GoP is a group of single-employer plans, related or unrelated, whose sponsors have chosen to affiliate with each other. One of the primary reasons to do so is to be able to file a single consolidated Form 5500 and (presumably) conduct a single audit for all plans in the GoP.


Section 202 of the SECURE Act specifies that all plans in a GoP must first, be defined contribution plans and second, must have the same:


Named fiduciary (or fiduciaries)


Plan year

Investments/investment options

Defined Contribution plans

It makes sense that all the plans in a certain group are the same type, and the Group of Plans is no exception. To ensure this, SECURE wrote it into the act. All plans must be single account, defined contribution plans such as 401(k)s.

Same trustee

ERISA (Employee Retirement Income Security Act of 1974) mandates that assets of an employee benefit plan must be held in trust overseen by one or more trustees. The trustee must be named in either the trust document or the plan document, or appointed by a plan fiduciary. The trustee has oversight of the plan’s assets unless that responsibility is delegated to one or more asset managers.

Since all plans in the GoP must have the same trustee, that trustee must be agreed upon by the plans who are forming the GoP and their trust and plan documents amended to reflect that trustee.

Same named fiduciary

Every employee benefit plan must be established and maintained by a written plan document. This document specifies the ERISA section 402(a) Named Fiduciary for the plan, who is the main fiduciary responsible for the plan’s administration. In many cases, this is the employer who sponsors the plan; a different fiduciary can also be named by the plan document. Certain fiduciary responsibilities can be delegated to an ERISA 3(21) investment consultant and even more to an ERISA 3(38) investment manager, but not all.

A GoP is overseen by a named fiduciary who is the same for all plans in the group, so plan amendments will be required to name the GoP fiduciary for each plan.

Same administrator

A plan’s administrator is named by the plan document. If the document doesn’t name an administrator, it’s the plan sponsor. Certain administrative functions can be delegated to an ERISA 3(16) administrator, but not all.

Who will be the administrator for the GoP? Instead of the individual plan sponsors, it will have to be a person or entity agreed upon by the members of the GoP. This could be a possible sticking point since plan sponsors tend to be protective of their plans.

Same plan year

It just makes sense that all the plans in the Group of Plans have the same plan year, beginning on the same date, such as January 1 for calendar year plans. The only exception would be for a short plan year caused by a mid-year plan termination. A GoP would be a nightmare to keep track of if all the plans associated with it had different plan years, if not impossible. After all, one of the main reasons to group together in a GoP is to have a single Form 5500.

The vast majority of defined contribution plans operate on a calendar year basis, so this requirement may not be much of a hurdle. If a plan sponsor with an off-calendar-year-plan wants to join the group, the sponsor will simply need to amend the plan for calendar year status.

Same investment options

All plans in the GoP must have the same investments and investment options offered to their plan participants and beneficiaries. This makes administration and communication among plans easier, not to mention preparation of Forms 5500 for the GoP.

This requirement of the legislation will require plan sponsors to change their investment lineups to be the same as selected for the GoP. This aspect of a GoP is one that will be the most visible to plan participants since they will be directly impacted by the change. Good communication at this stage will be critical for the success of the implementation into the GoP from a single plan arrangement.

Plan design

SECURE doesn’t address plan design for GoPs the way it does for MEPs and PEPs, so each plan sponsor in a GoP can design their plan the way they want, with the features that work best for them and their employees.


The upside to GoPs is the ability to file a single Form 5500 for more than one plan, which can reduce administrative burdens and costs. The downside is that plans are still administered separately, not together as they are with MEPs and PEPs.

GoPs will also probably be easier to establish than MEPs and PEPs, although final guidance hasn’t been issued yet.

However, it’s not too early to start thinking about your role as an advisor to both your existing clients and prospective clients. As an advisor, you know what types of plans your clients have and what their needs are. It may make sense to bring a group of small employers together to form a GoP, or put a new plan into an existing GoP.

It’s all based on individual characteristics and preferences of the plans being brought into the GoP. Some things – like plan design features – can be different, but other things – such as the plan administrator, fiduciary and trustee – must be the same. As must the investments. How much control the plan sponsor is willing to give up could be a sticking point.

Planning and communication will be very important, especially when it comes to the plan investment options. It takes time to approve the plan amendments that will be required.

But first, the key players in the GoP – fiduciary, trustee, administrator – must be determined. How that will happen and how those people or entities will be selected will be specified by some sort of agreement that is part of the GoP setup.

How will all this come about? Stay tuned for guidance that will need to address all these issues. It never hurts, however, to be as prepared as possible if you’re thinking about working with Groups of Plans beginning in 2022.

About the Author

Rich Rausser headshot PentegraRichard W. Rausser has more than 30 years of experience in the retirement benefits industry. He is Senior Vice President of Client Services at Pentegra, a leading provider of retirement plan and fiduciary outsourcing to organizations nationwide. Rausser oversees consulting, BOLI and non-qualified business development and actuarial service practice groups at Pentegra. He is a frequent speaker on retirement benefit topics; a Certified Pension Consultant (CPC); a Qualified Pension Administrator (QPA); a Qualified 401(k) Administrator (QKA); and a member of the American Society of Pension Professionals and Actuaries (ASPPA). He holds an M.B.A. in Finance from Fairleigh Dickinson University and a B.A. in Economics and Business Administration from Ursinus College.



The SECURE Act of 2019 has spurred even greater interest in Multiple Employer Plans (MEP), and created new arrangements such as Pooled Employer Plans (PEP), and Groups of Plans (GOP). This popularity has the potential to alter the structure of the Retirement Plans landscape and to transform plan advisor practices. 

For advisor teams, the emergence of PEPs presents both a threat and an opportunity.  At a recent meeting of the Retirement Advisor Council, Michael Rhim of PRM Consulting, Mark Olsen of PlanPilot, Nichole Labbott of Sageview Advisory Group, and Terry Power shared their perspective.  Council members Scott Schlappi and Paula Hendrickson moderated the session.

The SECURE Act stated a specific goal of enhancing the availability of defined contribution retirement plans among small employers. This is integral to the intention of providing access to 401(k) plans for those Americans who can’t participate in such a plan today.  However, benefits extend to all employers, not just small business.

PEPs are of particular benefit to current plan sponsors with 100 to 500 employees.  Indeed, upon joining a PEP, these employers will no longer need to file a Form 5500 or have an annual plan audit for their own plan.  They will also limit their fiduciary responsibility to the selection and monitoring the Pooled Plan Provider (PPP).  No longer will they be liable for the selection and monitoring of investment options, or for plan administration. 

The benefits of PEPs and other pooled arrangements extend to employers of all sizes and in all industries. This gives plan advisors the opportunity to discuss the characteristics of these new options with current clients, even if (or maybe especially if) the client is not a good prospect for these new options.  For example, employers with a strong preference for a custom retirement plan solution and sufficient scale to negotiate preferred services from their recordkeeping service provider wouldn’t be particularly good candidates for a PEP. However, these employers may question the value of their current advisor relationship if they learn about these arrangements from a competing advisor.

Terry Power warns advisors, “Be aware of what is happening in the market because you will get phone calls from clients who have been approached about it.”  For this reason, Terry proposed that PEPs present an opportunity for advisors who enjoy educating plan sponsors.  ”Educating clients gets us and keeps us involved in the discussion even if it is not the best solution for the client.” Mark Olsen added.

Scott Schlappi pointed out that discussing the practice’s posture regarding PEP plans highlights the difference between cost and value proposition.   “If you hear it’s cheaper – it is because your fee is cheaper, it is not because the recordkeeper’s fee is cheaper.”  And the situation may be even a bit more complicated.  Mark Olsen pointed out that an advisor becoming involved with a PEP plan for multiple clients may actually lose revenue in the short term: “You may get a drop of revenue but some years down the road, it may create larger margins.”

Terry Power replied that “But there is good news too; your cost will go down as well.”  For this reason, Michael Rhim recommended that advisors approach MEPs, PEPs and GOPs strategically, to gain the experience that puts them in a position to speak to PEPs with authority: “You have to be strategic about the way you approach the multiple plan market.  How you want to structure pricing and service model, because if you don’t have the experience, it puts you behind other advisors who do.”

The strategic approach seems to be the right one. Becoming a PEP advisor doesn’t entail providing soup-to-nuts service to the PEP.  There are several roles for an advisor to pick and choose when it comes to their typical involvement in a PEP plan as Mark Olsen pointed out:

Advisors can play different roles in relationship to the PEP.  It may take a little introspection on the part of the advisor to determine the best approach. Where is the emphasis or sweet spot for the practice?  Is it to be the 3(38) investment adviser, the educator, or a custom portfolio manager?

To select the role an advisor wishes to play with PEPs, Michael Rhim: suggested that advisors ponder three critical and revealing questions:

  1. Does it make sense for you to be an advisor for a MEP or a PEP?
  2. How do I deepen my relationships with my clients and discuss with them if a MEP or a PEP makes sense for them?
  3. What services can I offer to them?

Working in teams may be the best option for an advisor.  Nichole Labbott pointed out that “Collaboration has to be in the spirit of what you provide.  We are a 3(38) and we pride ourselves in consulting.  You have the opportunity to partner with others.  Plan sponsors like to hear confirmation from multiple parties (auditor, ERISA attorney, other professionals).” Working in a team with other professionals adds credibility to the services that you provide.

While many plans will have a geographic or regional component in nature, Terry Power suggests that advisors deciding to get involved with PEPs look at their entire block of business and ponder if it makes good sense to set up a proprietary PEP for their client base.  Group of Plans (GOPs) will start in 2022.  Advisors can create a group of plans that share the same investment trust.  For example, they could create a group of plans consisting of clients of a given ERISA attorney.  A new frontier may be on the horizon. Advisors will need to educate themselves on what makes the most sense for them and their practice overall. Meanwhile, their clients will keep them on their competitive toes in the ever-changing retirement industry. Is it PEPs, MEPS, GOPs or not?


The Setting Every Community Up for Retir1ent Enhanc1ent ("SECURE") Act, which was signed into law on Dec1ber 20, 2019, is being hailed as the most significant retir1ent savings reform since the Pension Protection Act in 2006. 

So what does the legislation mean for plan advisors, service providers and investment managers? Plan amendments, changes in syst1s and procedures, new education and training, and, last, but certainly not least, many, many opportunities to increase plan coverage and savings. 

This article highlights eight key actions to be taken to impl1ent and comply with the SECURE Act provisions for qualified defined contribution ("DC") plans, as well as opportunities to discuss with plan sponsors changes in investment line up and other features of their DC plans. Please note that the CARES Act, the coronavirus economic stimulus package, has extended a few of the SECURE Act effective dates, and other effective dates are subject to further delay. 

The SECURE Act also provides opportunity to approach 1ployers that have not yet established a plan for their workforce.  Here are a few action it1s and suggestions pertaining to the SECURE Act:

  1. Review with plan sponsors procedures to comply with SECURE Act requir1ents that are immediately effective (amendments to plan documents required by 12.31.2020):
    1. Eliminate plan credit card loans;
    2. R1ove restrictions on distribution of lifetime income investment that is no longer authorized to be held in the plan;
    3. Permit penalty-free, in-service distribution for "qualified disasters", with the ability to recontribute the distribution within three years;
    4. Permit penalty-free, in-service distribution for "qualified birth or adoption";
    5. Increase required minimum distribution age to 72 years old (the CURES Act permits waiver of all RMDs to be made in 2020);
    6. Limit "stretch RMD".
  1. Review with plan sponsors opportunities for increasing savings and retir1ent security that are immediately available:
    1. Increase safe harbor cap on automatic enrollment and auto-escalation to 15% for years after the first plan year in which the 1ployee is automatically enrolled; 
    2. Discuss with small 1ployers (up to 100 1ployees) their eligibility  for a $500 credit for up to three years, if they add auto-enrollment
    3. Take advantage of the fiduciary safe harbor for selection of an annuity provider to provide an in-plan annuity investment option, or a lifetime income distribution option.
  1. Begin discussing with plan sponsors process steps to comply with new requir1ents to take effect in future years:
    1. Coverage of long-term, part-time 1ployees (mandatory) for plan years beginning Dec1ber 31, 2020, except that for purposes of the new eligibility requir1ents, the 12-month period before Dec1ber 31, 2020 need not be taken into account;
    2. Lifetime income disclosure: must be added to annual stat1ents furnished more than 12 months after the latest issuance of DOL's issuance of interim final rules providing guidance on a model disclosure or permissible assumptions. Start talking about assumptions, models and how to most effectively build on the disclosure to help participants understand the value of their savings.
  1. Take advantage of the buzz and seize the opportunities that may arise from the SECURE Act. Advisors and Service Providers should meet with plan sponsors to discuss the various opportunities, new tax credits, changes in plan notices and education delivered to plan participants, as well as impl1entation challenges of the new law. Set up a time frame for making decisions about possible changes. Significant provisions for DC Plans include:
    • Increased auto-enrollment caps;
    • Addition of lifetime income options as a plan investment and a distribution option;
    • Prospective electronic delivery of plan communications once the Treasury proposed rule on e-delivery becomes finalized.
  1. Start working on syst1 changes, plan amendments and participant notice changes.
  1. The SECURE Act includes many required changes to plans to increase coverage, to help increase financial literacy of plan participants, and otherwise: 
    • Required coverage of long-term, part-time 1ployees. Vesting schedules need to be changed to accommodate these workers; however, the SECURE Act does not preclude plan sponsors from vesting these 1ployees on the same schedule as other 1ployees;
    • Provision of lifetime income disclosure - need to determine model and assumptions per DOL guidance; 
    • Increase in the Required Minimum Distribution age to 72 (see IRS Notice Notice 2020-6, providing relief for financial institutions who provided erroneous information to IRA account holders who reach the age of 70 ½ in 2020);
    • Penalty free withdrawal of up to $5000 upon the birth or adoption of a child;
    • Penalty free distributions or loan up to $100,000 for disaster relief from January 18 through February 18, 2020;
    • Changes to stretch IRA to require distributions within 10 years unless exceptions; 
    • Repeal of age limitations for contributions to IRAs.
  1. Train Contact Center Staff
    • Educate Call/Contact Center staff regarding the plan amendments and procedure changes so they can accurately respond to 1ployees.
  1. Opportunities to increase coverage - increase the buzz and meet with prospects - 1ployers that have not yet established their own plans
    • Discuss with service providers their plan to offer: 
      • Open pooled 1ployer plans/ open MEPs
      • Plan aggregation with consolidated Form 5500
    • Inform 1ployers of the tax credits available for both setting up a new plan, as well as adding automatic enrollment. 

Don't forget to meet with plan sponsors to discuss required changes to comply with the SECURE Act, as well as opportunities to increase savings and enhance retir1ent security preparedness of plan participants.  Finally, <1>join the Retir1ent Advisor Council's Government Affairs Committee </1>to participate in discussions regarding regulatory guidance that will define important provisions of the plan such as lifetime income disclosure models.

On March 27, 2020, President Donald J. Trump signed into law the CARES Act, a $2 trillion stimulus package to help combat the coronavirus and its economic impact. 

care blog1

The CARES Act provides economic relief to business owners and to hospitals and government agencies battling the coronavirus, the CARES Act provides the following temporary preservation of and access to accumulated retirement savings. 

Waiver of the Required Minimum Distribution rules. 
RMDs from any defined contribution plan or IRA for the 2020 calendar year are waived.

In-Service Distributions
Individuals "impacted by the coronavirus" will be able to take up to a $100,000 in-service distribution from their defined contribution plan and IRA anytime during the 2020 calendar year with the following accommodations. The distribution shall be made without regard to the IRC limitations for hardship distributions;

  • Exempt from the 10% early distribution penalty
  • Exempt from the 402(f) requirements and mandatory 20% withholding applicable to rollover distributions
  • The amount distributed may to be claimed as income over a three-year period beginning with the year the distribution would otherwise be taxable; and 
  • The amount distributed may be recontributed to the plan or IRA within three years, in which case the recontribution is treated as a direct trustee-to-trustee transfer within 60 days of the distribution,

Only individuals impacted by the coronavirus are eligible for the distributions. An individual impacted by the coronavirus is defined as one:

  • Who is diagnosed with coronavirus
  • Whose spouse or dependent is diagnosed, with either the SARS-CoV-2 or coronavirus disease,
  • Who has experienced adverse financial consequences resulting from being quarantined
  • Who is unable to work due to child care, furlough, job loss, etc.

Diagnosis of the virus is to be made by a CDC approved test; however, the employer may rely on the employee's self-certification. 

care blog2

Plan Loans
For individuals impacted by the coronavirus, as defined above, the maximum loan amount that can be taken from a plan is increased to the lesser of (1) $100,000 ( an increase from $50,000) or (2) the greater of $10,000 or 100% (from 50%) of the present value of the participant's vested benefit. 

Any loans taken by an individual impacted by the coronavirus may be taken anytime during the 180-day period beginning on March 27, 2020 the day the CARES Act became law. In addition, repayment of any loan otherwise due from the date of enactment through the remainder of calendar year 2020 will be delayed one year. 

Plan Amendments
Plan amendments to take advantage of the above relief must be made no earlier than the last day of the first plan year beginning on or after January 1, 2022 (or January 1, 2024 for government plans). 

Student Loans.
Student loans often compete with retirement savings. The CARES Act can offer relief of up to $5,250 in tax-free student loan repayments that meet certain requirements.

At the time of this publication there are additional relief packages under consideration in Washington. Many Americans are under a "stay at home" order. Altogether, approximately 250 million Americans - about 75% of the country - have been told to remain sheltered and, when engaged in essential activities, maintain at least six feet of distance from those who are not members of their immediate household. The impact on business both large and small continues to accrue. This is truly a pandemic. No region of the world is untouched. We will continue to monitor activities in Washington and keep you apprised of legislative or regulatory changes. 

NEW ME versus OLD ME written on the white arrows, dilimas concept.
A relative about to turn 62 wanted to discuss his retirement with me recently. He had started out as a delivery truck driver and advanced to commercial pricing. His situation looked like this:
$400,000 in profit sharing and 401(k) plans, an estimated monthly Social Security benefit of about $1,800 with early retirement at 62 and the payout from a frozen defined benefit (DB) plan of $720 per month.
I did a quick, back-of-the envelope guesstimate - $400,000 with a 5% draw-down would be $20,000 per year;Social Security would add another $21,600 per year, along with $8,640 annually from his pension - for an annual income of $52,600 in retirement. That would be a 105% replacement rate of his current income in the $50,000 range. Wow! I was impressed, to say the least.
How did he do it?
So, I had to know: How? As long as I'd known him, he seldom, if ever, discussed his retirement plan or savings and showed limited concern about the long-term plan. What was the key to his success? Simple - he did nothing. Well, not nothing, but there was little active participation. The keys to his success are:
  • 42 years at the same company
  • A DB plan
  • A profit-sharing plan that changed to an auto-enrolled 401(k) plan
  • Employer-controlled investment management.
  • No provision for withdrawals before retirement date
How does it apply to us?
How can the rest of us replicate this "wow" replacement rate? Unfortunately, most people don't have a DB plan, and few work for the same company for 42 years. But there are clearly things we can learn.
We could at least come close if every retirement plan in the United States could:
  • Auto enroll employees at a 6% level
  • Auto increase employee contributions
  • Limit in-plan withdrawals to severe hardship
  • Provide a professionally managed qualified default investment alternative (QDIA) or an investment option that adjusts for the needs and ages  of its participants 
But how do we replicate 42 years at the same company? Perhaps Congress or the Department of Labor could require participants to roll over all plan assets to the successor company or to a special IRA that doesn't allow withdrawals until early retirement dates.
The result? While other participants might not work at the same company for 42 years, they could work 42 years and have 42 years of contribution and growth upon reaching early retirement age. This isn't a simple change, and rules wouldn't solve the rollover or distribution issue immediately. But they could over the long run. Plan design, investment design, and limited access could be the key to retirement readiness with a "wow" factor. That would create many more happy accidental retirees like my relative.
Jeff Hemker
National Sales Manager, Retirement Division
  1. For illustrative purposes only, based on a hypothetical portfolio earning an average annual return of 4% and a 5% withdrawal rate over 35 years. This example is for hypothetical purposes only and does not reflect the performance of fees and charges associated with any specific investment, nor does it take into account the effect of taxes or inflation. The assumed rate of return in the example is not guaranteed; investment returns fluctuate over time and losses can occur.
NEW ME versus OLD ME written on the white arrows, dilimas concept.
The importance of diversification can't be overstated. Retirement plan sponsors, advisors, and consultants should be aware of a simple, effective addition they can make to their defined contribution (DC) plan lineups - the inclusion of real estate investment trusts (REITs). 
Some quick facts:
  • Real estate can enhance a portfolio's risk-adjusted returns because of low correlations with stocks and bonds, attractive total-return potential, and inflation-hedging ability.
  • While real estate typically makes up 5% - 15% of the asset allocation among institutional investors, according to Brightscope only 45% of DC plans with 100-plus participants offer real estate as an investment choice. And among those plans, allocations to real estate average just 2% of plan assets.
  • Just as real estate can help diversify overall portfolios, REITs themselves are diversified. They include a wide range of property sectors with varied business models, supply-and-demand cycles, geographies, and are affected by wide-ranging macroeconomic conditions and governed by varied interest-rate policies. All of this adds to diversification.
  • U.S. REITs outperformed the S&P 500 Index in 18 of the 26 calendar years through 2017, according to Morningstar. It's true that past performance is no guarantee of future results. But are you willing to ignore an asset class with such strong historical returns?
To learn more about REITs, their diversification potential, past performance, inflation protection, and how they can help your plan participants, click here to read "REITs: Answering the Call for DC Plan Diversification."
Cohen & Steers
Global Investment Manager

past present and future image

It's no secret that profit margins in the defined contribution and asset management businesses are under tremendous pressure. Plan administrators have been running on fumes (i.e. microscopic margins) for years, which means they will do whatever they can to deflect the pressure elsewhere. Asset management and plan consultant services are bearing the brunt of the changes.

As part of our latest research effort, Sway Research surveyed just over 200 DC plan consultants, including those at firms that specialize in employer-benefits and those who have both a large wealth management practice and a substantial book of DC plans. We asked this group to rate their level of agreement with the following statement:

I/we have experienced substantial fee compression in the DC plans we sell and service.

As shown in the accompanying exhibit, 49% of respondents agreed, 8% of whom did so strongly, while just 19% disagreed. So, what is the impact of fee compression to these practices? Well for one thing, an even greater percentage of respondents agreed with this next statement:

Fee compression is negatively impacting our revenues and thus the growth of our practice.

Nearly three in five respondents share experiencing revenue erosion resulting from the downward pressure on DC plan fees, which is impacting the ability to grow. Nearly a quarter are in strong agreement, suggesting this is a significant issue for these plan consultants.

What are some logical responses to this issue? Well, clearly one way to deal with this is to deflect the fee cuts towards the investment providers. Some margins left in this business are held by asset managers, particularly active managers. Thus, there's the recent rush to bring more passively investments into DC plan menus, which has also been spurred on by the litigious environments surrounding plan menus and investment selection. In fact, more than half (53%) of DC Plan consultants say they are increasing usage of passive options in plans, even though more than a third of their DC plan AUA are already held in passive products.

Another area ripe for cost cutting is in investment vehicle (i.e., shifting from higher-cost mutual funds to lower cost collectives). This year, two in five survey respondents acknowledge ramping their use of CITs in DC plans as well. The level is even higher among consultants who focus on plans in the $20M to $50M range.

But, wringing out fees from investments can only go on for so long, before there's nothing left to cut, and only a few asset managers are left standing. A world with only Vanguard and BlackRock may make for easier decision-making when it comes to populating investment menus, but plan consultants will have lost more than a much wider array of investments from which to choose. If it comes to this, plan consultants will have also lost many of their key allies in growing a DC plans business.

Each year, in addition to surveying plan consultants, Sway surveys the DCIO sales leaders of approximately 30 leading asset managers. And, each year when asked about their top-priorities for investment, these executives place the development of value-support programs and services for plan consultants near or at the top of their list. The only area ahead of this is usually staffing, which is mostly internal and external DCIO representatives who are tasked with supporting plan consultants. With asset management becoming increasingly commoditized, the value-add side of the equation, whether delivered through the market knowledge and expertise of staff, or via tools and programs designed to help plan consultant's prospect for, and close, more business, these services are a tremendous aid not only to plan intermediaries, but plan sponsors and participants as well.

Whether its tools to analyze the performance and suitability of a plan administrator or Target-Date series, staying up to speed on the regulatory front, or enhancing the understanding of plan profitability, DCIO sales and marketing units provide tremendous amount of value to plan consultants. So, keep this in mind the next time you're filling out a plan menu. Saving a few basis points by switching from active to passive management may seem like the best move in the short-run, but at what cost in the long-run? Selling and supporting plan sponsors and participants requires a great deal of investment from a wide range of parties, and when there's only a couple left standing-a couple who are essentially giving away their services to win the business-there may be no one left to help you grow yours.

Chris J. Brown,
Founder and Principal Sway Research

For more information about Sway Research, visit

blog retirement income chart
NEW ME versus OLD ME written on the white arrows, dilimas concept.
In late 2005, I was asked to lead an effort to deliver products and services to people transitioning into retirement. Every single area of my firm-and pretty much the entire financial services industry-was hyperventilating about this opportunity, fortified by a steady diet of news items about the 10,000 Baby Boomers retiring each day.
The Evolving Retirement Landscape
We created exhaustive educational programs and sophisticated interactive tools to help pre-retirees and their advisors gear up for the daunting task of creating lifetime income plans, and we developed investments designed to assist in the effort. But by 2008, our collective attention was diverted by the global financial crisis, and many of the industry's products and services created up to that point were folded.
Thirteen years later, the topic of retirement income is trending again, and this time it feels like it's got legs. Some 63% of 401(k) plan assets are owned by participants in their 50s and 60s.[1] That's causing plan sponsors to re-think their reluctance to encourage retirees to remain in their plans, as they consider the impact of the potential exodus of more than half of their plan's assets on plan fees. This, in turn, is pressuring recordkeepers to enhance their systems to allow for more flexible payout options. Having long served as retirement asset accumulation vehicles, 401(k) plans may need to evolve to be more accommodating for those transitioning into retirement.  Given this backdrop, how should consultants to 401(k) plans respond to the potential movement of accumulated plan assets from 401(k) plans?
Set Your Plan Up for Flexibility
Begin by talking with plan sponsor clients about their attitudes toward participants remaining in the plan post-retirement. Paternalistic plan sponsors, perhaps protective and concerned about the future well-being of their employees, may encourage them to stay in the plan and avail themselves of the institutional pricing and fiduciary investment oversight. Others will be concerned about the potential liability and complexity associated with having participants with balances who are no longer employees. In either case, the plan sponsor should be aware of how the plan's recordkeeping and administration fees might change if many large-balance retirees opt to take a distribution at retirement.
Next, consider the capabilities and functionality of the plan's recordkeeper. How often may a participant take withdrawals from the plan? Are there fees associated with these distributions? Can the participant direct the funds from which the distributions are made? Some recordkeepers began to address distribution flexibility when the Department of Labor signaled its concerns about plan distributions within the now-vacated Fiduciary Advice Rule, and I would expect more progress to come. You'll also need to ensure that plan documents reflect the plan's objectives for the types of distributions that are permitted.
Focus on Income Generation Potential
Review the plan's investment lineup with an eye toward income generation. Does the menu provide a sufficient mix of options needed to allow retirees to generate income? Plans tend to focus on investments that are designed to facilitate growth and accumulation. I believe that now is the time to consider volatility-dampening and income-generating strategies, and managed accounts that include personalized 401(k) plan draw-down strategies.
Finally, think outside the plan. Can you offer targeted education on topics directed at pre-retirees, such as optimal Social Security claiming strategies, or maximizing the potential benefits of a managed account by providing additional personal financial data?  The 401(k) plan was conceived as a retirement plan supplement and has matured to be the primary source of retirement savings for many workers. This is an ideal time for retirement plan consultants to help clients tailor their plans to address their retirement income preferences.  Click here for more information.
Kathleen Beichert
Head of Retirement and Third Party Distribution,
Oppenheimer Funds
These views represent the opinions of OppenheimerFunds Head of Retirement and Third Party Distribution and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments. Shares of OppenheimerFunds are not deposits or obligations of any bank, are not guaranteed by OppenheimerFunds, are distributed by OppenheimerFunds Distributor, Inc.
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FinLit2014This nation's financial literacy statistics are startling, as are the consequences.

  • The U.S. ranked 27th of 28 countries for this question in the 2012 Global Financial Literacy Barometer: "To what extent would you say teenagers and young adults in your country are adequately prepared to manage their own money?"
  • Seven in ten respondents to the survey believe that U.S. teens don't understand money management basics.
  • Three-quarters of teens believe the best time to learn about money management is in kindergarten through high school. But only three in ten say programs are currently in place.
  • At this point, only one-third of states - 17 states to be exact have a form of mandatory financial literacy K-12 education 

This is all stark evidence that we desperately need more comprehensive and mandatory financial literacy. Teenagers and young adults need to learn basic financial literacy skills, including saving, budgeting, and credit management, so they can take on the many financial challenges that await them.

So, what's the answer? While workplace education on money management and retirement planning are important, so much more needs to be done at an earlier age. We need to educate our young people BEFORE they enter the workforce –– before they're earning and managing (or mismanaging) their money. We have to do a thorough job of equipping high school students with practical financial life skills.

Fortunately, vital financial education is being shared through several popular programs targeted at our youth. These include:

Boys & Girls Club: This service organization has a "Money Matter$" program for 13 – 18 year olds. Teens learn financial responsibility and independence by learning how to manage a checking account, balance a budget, save and invest, start a small business and pay for college. Money Matters

Junior Achievement: This national organization is a leader in promoting workforce readiness, entrepreneurship and financial literacy through hands-on programs. JA Personal Finance 

Jump$tart Coalition for Personal Financial Literacy: This national non-profit coalition seeks to educate and prepare U.S. youth for life-long financial success. Jump$tart

Make a Difference Wisconsin: This statewide program provides financial literacy programs and resources that empower children to make sound financial decisions.

Credit for Life: This intense, practical program of Boston College High School has received rave reviews. In a single day fair, hundreds of students receive in-depth exposure to financial literacy with a focus on budgeting and saving through 401(k) plans. Credit for Life

For that one day, each high school senior gets to choose an occupation. Then, based on official Bureau of Labor Statistics data, they each receive an annual income and are assigned a certain amount of student debt and a random credit score. With that information and the resultant opportunities and restrictions, they make real-life types of decisions about their retirement plan, loan payments and the costs and merits of buying every-day items.

For example, students have to weigh choices of apartment rentals, car purchase, insurance, utilities, cell phone plans and how much they're able to set aside and save in their simulated monthly budgets. There's even a reality-check station where, like a game of Monopoly, they might get a Fortune card that says: "Speeding ticket – $150" or "You've inherited $500." So, it's educational and fun. And like life, it can be unpredictable.

Throughout the day, students learn the basics of financial management through a series of quick, 15-minute workshops, including a 401(k) information session. That drives home the message that all workers are responsible for their own retirement, and starting sooner can make a big difference.

At Boston College High School last year, the level of engagement among seniors was very high. They actively sought help, asking plenty of follow-up questions to program advisors. The retirement saving and investing booth was among the most popular.

Make Financial Literacy Mandatory

These are wonderful programs. We're moving in the right direction. But we need more. We need mandatory financial literacy as part of the high school curriculum. Let's push to triple the number of states that require it, from the current 16. If students in Ohio and New Jersey must be financially knowledgeable when they graduate from high school, why should students in Wisconsin and New York State, for example, be denied that vital skill?

We all know about the sorry state of financial preparedness in our society and our workforce. Too few people are successfully managing their monthly budgets and financial future. Let's do something meaningful and far-reaching. Let's make financial literacy mandatory.

What can YOU do about it?

First, find out if local schools are doing anything like this. If not, find out who could be a good resource to help set one up.

Second, volunteer to help plan such an event and to make financial presentations that will help equip today's students for a lifetime of financial success. Ask your financial advisor how s/he will support the event.

Third, contact your state officials, particularly the secretary of education, to push to make financial literacy a mandatory requirement within the high school curriculum.

Financial literacy: We can all pay it forward. Let's start today.

Contributors: Tom Hoffman  - Sharon Schmid Jason Chepenik Financial Literacy Committee

Anticipated revised proposed regulations may not be workable

An extensive discussion of the fiduciary rules proposed by the U.S. Department of Labor (DOL) was a highlight of day two of the semi-annual meeting.  Members in all colleges engaged in the discussion of the upcoming announcement of revised rules.  Many expressed concern that new rules may limit options for sponsors and participants.  Participant education, participant counseling, asset gathering, asset retention, retirement counseling, and even the mention of an investment option may automatically qualify the plan advisor, and perhaps also the plan service provider as a fiduciary to the plan and to the participant.  These limitations are poised to impede client service.

In particular, rules may reduce the availability of participant education and communication materials, as it is expected that any mention of a “product” such as a fund name will automatically trigger the new fiduciary definition.  What’s more, some anticipate the DOL will require compliance with the new rules within eight months, a compressed schedule that is just not feasible to change hundreds of thousands of plans.  Two years is needed if most plans need new contracts.  That is a costly and time-consuming endeavor.

Technological innovation enhances Advisor effectiveness

Plan Advisors typically have access to tremendous amounts of data about client plans, participants, and investment markets.  However, there is only so much information clients can absorb to support decision making.  For this reason, plan advisors need to determine the most important data sets and how to leverage these data points in client conversations.  Simply put, advisors need to determine how they want to convey information, and—more importantly—what sponsors and participants want and need to see to support decision-making.

Advisors, plan sponsors, and their participants can also benefit from convenient video conferencing solutions. Video solutions provide scale and greater geographic reach.  Video conferencing personalizes the individual on the other end of the phone, and compels both presenter and audience to be much more attentive to the content.  The technology to leverage video conferences, save big money on travel, and streamline business is increasingly available, convenient, and reliable.  Video conferencing is just one of the many solutions enhancing plan effectiveness. Mobile technology (tablets and handheld devices) is another area of innovation enhancing effectiveness.  The bottom line is that “user experience” is all about presenting people with the information they need in the format they prefer, when and where they need it. Advisor success hinges on the ability to understand the needs of the audience before preparing tablet or paper reports for the next meeting. In many cases, a video conference can be just as effective as an in-person meeting.

Technological innovations that impact Advisor effectiveness also encompass a wide variety of social media.  Compliance requirements are often a challenge for Advisors seeking to leverage social media to enhance effectiveness.  To get started, an Advisor may act as a ‘net consumer’ of social media (think “read only” rather than active posting), and simply listen before joining the conversation.  A series of Google Alerts with words and phrases to follow companies, stocks, or even topics is a good way to start and be notified instantly or, receive a daily email digest of happenings.  One suggestion is to track all of client sponsors and prospects.  Updates about the competition and industry help as well.  Other programs that aggregate listening (or posting) include Hoot Suite and Social Mention.  

Closing thoughts

Council activities are not limited to in-person meetings.  Meetings are the source of ideas and initiatives, but activity extends to conference calls, committees, public relations campaigns, research, comments to regulators, maintenance of the advisor search RFP template, and others needed to support enhanced retirement outcomes for working Americans

Next month, the DOL is widely expected to issue the revised copy of its proposed rule seeking to redefine the term "fiduciary" with a focus on conflicts of interest. The rule aims to eliminate conflicts of interest and to establish a fiduciary standard with participants’ best interests at heart. The initial proposal was revolutionary in a number of ways. In addition to attempting to establish an overall fiduciary standard, the bill also proposed language that may require the plan advisor and the service provider to act as fiduciaries if investments were mentioned. This in turn may impact employee education and communication.

The main objections are that small employers, who typically buy retirement plans through broker/dealers, will have limited choices because the cost of compliance with the rules (best interest contract) will reduce the number of advisors who are able to offer these services. Those who are still able to offer retirement plan guidance will likely reduce the amount of investment education and communication for participants.

Not all the news is negative. The rule presents an opportunity for registered investment advisors and investment advisor representatives who are entirely dedicated to offering retirement plans. The challenge for them may be in the level of fiduciary responsibility that comes from gathering assets from outside plans. Other challenges include:

  • Participant Education – if investment information is referenced the advisor or provider could be considered the fiduciary
  • Advice – any investment solutions offered specifically for use in retirement plans may be considered advice which would be subject to different guidelines
  • Product information – Product information or allocation information may be considered advice which would only be available from the fiduciary

All of these issues may result in the emergence of entities – spun off by service providers - entirely dedicated to communication, education, and advice of retirement plan participants which could be compensated with a flat fee-for-service arrangement.

In the end this may drive further consolidation of retirement plan recordkeepers and undoubtedly reduce coverage. Two bills were introduced in the house in December that would establish a “best interest” standard for advice given to qualified plans and IRAs. They would block the DOL from amending the existing definition of fiduciary while adopting many of the proposed DOL changes, but adoption by both chambers is unlikely.

We will continue to keep you apprised of the latest developments and we will dedicate time at the annual meeting in June to discuss the status. In the meantime, be ready to flex your business model!!

President Barack Obama released his 2017 proposed budget on February 9. Among the $4.1 trillion dollar initiatives were two pieces of funding that could impact the retirement community.

  1. The budget proposes to double the SEC's funding for regulation of investment advisors as the SEC considers shifting resources from broker examinations to investment advisor examinations. The proposed budget increase would allow the SEC to hire more examiners who would conduct advisor exams. Today, the SEC examines about 10% of RIAs. The increase would bring that percentage up to 12%. By comparison, FINRA and the SEC are able to examine more than 50% of all brokerages registered with FINRA at roughly once every two years, compared with one every 10 years for advisors.
  2. The budget proposes to limit the amount of money that can build up in a tax-favored retirement account to $3.4 million. This is not a new addition to the budget as it has been proposed in the past, but industry experts worry that this type of thinking could lead to changes in retirement accounting at a time when American retirees are underfunded to begin with.

The 2017 budget is in for a tumultuous journey in this election year. Considering that the 2016 budget did not get passed until close to the end of 2015, it is likely that this budget will not be taken seriously until after the elections in November, 2016. More updates on this budget will be posted as they surface.

At the Semi-Annual Meeting hosted by LPL Financial in sunny San Diego, CA, the Council dug deep into the issues facing retirement plan advisors in 2016.  This meeting’s theme - The Wild, Wild West…A Moving Frontier for Retirement Plan Stewards - captures the sentiment shared by many advisors that the industry is evolving at a fast pace. Getting together live provides attendees with the opportunity to share directly with their peers and compare experiences with plan providers, investment managers, practice leaders and others in the industry.

The Council has grown to include 89 financial advisors, 12 retirement practice leaders, 10 recordkeeping service providers, and 14 investment management firms who each bring a unique perspective on retirement plans. The collegial mix makes for lively panel discussions, breakout peer groups, and one-on-one exchanges. Following is a brief description of the most prominent topics and discussion points from the meeting’s first day:

“Independent” Advisors Advance

The role of Registered Investment Advisors (RIAs) in the Retirement Plans space continues to grow.  Many plan sponsors appreciate the independence of an RIA who does not have ties to a specific retirement plan provider, investment manager, or insurance company.  Advice from “independent” Advisors is perceived as unbiased.   One speaker pointed out RIAs have created 10,000 job opportunities and bring to the market a sense of independence, opportunity, and a level of client service in high demand among plan sponsors. Going one step further, opportunities for RIAs abound at the participant level.  Managed accounts represent only a small portion of retirement plan assets and a whopping $23 trillion sit outside managed accounts.  

Rise of the Machines

Are plan advisors competing with Robo Advisors?  Robo advisors - automated investment advice vehicles - are gaining popularity particularly among members of Generation Now, but cannot replace the sentient touch of a living advisor who can take more into account than a simple program or algorithm can.  Advisors continue to educate plan sponsors about their value and need to constantly demonstrate how much farther the personal touch can go when competing against automated solutions.

A Holistic Approach to Employee Finances

Plan sponsors are asking for more when it comes to employee education.  Financial wellness is gaining popularity as a discipline, covering employer-sponsored retirement plans and education about consumer debt, savings outside of an employer plan, and anything that can impact employees’ overall financial future. Other topics include estate planning, tax planning, and how to be a prudent consumer.

Retirement By the Dashboard Light

Plan sponsor thirsty for knowledge about their retirement plans is not easily quenched, but many refuse to drink from the fire hose.  As an alternative to the voluminous 50-page reports offered by some plan providers and advisors, sponsors are asking for simple “Dashboard” reports.  These can illustrate the state of their retirement plan at a glance: plan performance, plan health, investment fund indicators, or any number of topics.  Sponsors are asking for an easy-to-read summary aka dashboard, and also the ability to drill down to a deeper level if they want more info about anything shown at the highest level.

“Kids” Today

The younger generations will become the wealth holders of tomorrow. For this reason, many advisors focus their attention on reaching clients while they’re still young.  This next generation, dubbed Generation Now is described as those who are 30-45 years old now.  There’s a myth that younger folks just want everything online, but when making financial decisions they almost always go back to mom and dad (take that, Robo Advisors).  
This group currently control $3.5 trillion in investable assets, but by 2050 they will likely be the beneficiaries of $16 trillion in wealth.  This group will control the lion’s share of investing in the future. To attract younger clients, firms are exploring:  lowered asset minimums, bringing younger advisors in to help them connect with younger clients, and integrating the latest technology.

Show, Don’t Tell

Providing clients and prospects with case studies is an excellent way for plan advisors to demonstrate the value they’ve brought to other clients, especially when the case-in-point client shares characteristics of the client or prospect the advisor is hoping to impress.  The advisors at the conference who’ve used case studies uniformly tout the benefit of providing this kind of detailed ‘proof’ to clients of both their capabilities and client successes. The Council currently features two case studies on the website, with several more to follow in 2016 representing the broad range of Advisors in Council membership.

Over the past quarter-century, plan sponsors, their advisors and retirement plan recordkeepers have invested hundreds of millions of dollars to educate the workforce about the benefits of participating in a 401(k) plan. However, despite these extensive efforts, the results have yet to substantially improve the retirement readiness of working Americans. Why?

One reason is that they have failed to consider the financial literacy needs of employees as well as their level of financial stress, and the two go hand in hand. If employees don't do basic budgeting, then they may never be financially healthy enough to be able to save money regularly and ramp up these contribution levels over time.

When creating an effective financial education curriculum for your plan participants, get back to basics: Make sure you meet the basic financial literacy needs of plan participants. Here are some key elements of financial literacy to include:

1 – Think and act long term - Like taking a healthy long-term approach to diet and exercise, financial success comes to those who incorporate healthy habits into their lifestyle rather than opt for the latest crash diet or gimmicky exercise fad. Teach participants how to create a long-term strategy in support of life-long goals as well as how to track monthly spending and income. This can help them free up money that could be channeled towards those big, potentially daunting goals.

By getting participants to focus on the big picture, you can help them resist such dangerous distractions as chasing hot-performing investments and overreacting to short-term market "noise."

2 – Time is on their side - Participants need to know that one of their most powerful allies is time. Starting at age 25 can make things so much easier than waiting a decade and having to play catch-up. For example, by saving $5,000 a year at an annual return of 6%, a 25-year-old could hypothetically accumulate $820,238 by age 65, a 40-year span of compound earnings. Even if the individual stopped contributing new money after age 35, he would have $69,858 after 10 years, which would then grow to $401,229 without adding a single dollar afterwards.

Compare this with the cost of waiting 10 years. A 35 year old contributing the same amount over the remaining 30 years to age 65 would accumulate $419,008. The cost of waiting the 10 years to begin to contribute to retirement savings is $401,229. Another way to look at this is that the person who contributed from age 25 to 35 would end up with more than $400,000 by saving just $50,000, while the one who saves $150,000 over the remaining 30 years would end up with about the same amount. Who would get more bang from their savings buck?

These types of illustrations can bring home to young plan participants how important it is to contribute now and not wait a moment longer.

3 – Understand investing basics - Participants don't need to be sophisticated investors, but they do need to know the basics. They should be comfortable with asset allocation, comparing investment performance with the right benchmark, knowing the difference between actively managed and passive investments, understanding mutual fund expense ratios, and emphasizing long-term performance over short-term returns.

By helping participants understand the basic building blocks of investing, you can help to empower them to make their own investment decisions and to be able to track their fund and portfolio performance against the relevant benchmarks, rebalance their asset allocation as needed from time to time, and monitor their progress towards their retirement savings goals.

4 – Beware the pitfalls of plan loans and in-service withdrawals - One important area where we need to do a better job is in educating participants about the dangers and costs of plan loans and in-service withdrawals as well as the long-term costs of cashing out of a plan rather than rolling it over and keeping it in a tax-deferred account when they leave a job.

The pitfalls include opportunity costs of lost potential earnings when the money is absent from the account and not generating compound returns as well as potential taxes and penalties if permanently withdrawn or owed when an employee leaves a place of employment.

The costs to our society of having a generation of workers who aren't financially ready to retire when they arrive at retirement age could be devastating. The costs to individuals who can't afford to retire or who have to make serious financial sacrifices through retirement can be heartbreaking. We need to work together to make sure that doesn't happen. We simply need to do a better job educating our plan participants.

Contributors: Charlie Avallone, Jason ChepenikMike Kane, Deb Rubin, Sharon Schmid, Jamie Worrell

Although Americans are being asked to bear more responsibility for their retirement, many lack the financial literacy skills or interest to answer the most vital questions, such as: “How much should I contribute? In what options should I invest? How much money will I need in retirement? And how will I manage the many financial risks I’ll face as a retiree?”

Solutions to the retirement readiness challenge usually take one of two directions: the improvement of education or the implementation of automated features in retirement plan design. Globally, myriad solutions have emerged: from mandatory participation in an employer’s defined contribution (DC) plan to auto-enrollment of employees into the DC plan, to voluntary DC/DB (defined benefit) and hybrid elements.

Plan design is critically important, but it won’t address the broader societal problem of poor financial literacy. The shifting risk from DB to DC — from employers to employees — shines a spotlight on a far greater problem than the retirement readiness challenge: basic financial illiteracy.

Workplace initiatives needed
We need to improve the financial literacy of working adults. Essential efforts are already being made to improve financial literacy among students, but we also need forward-thinking initiatives specifically designed to help our current workforce make better financial decisions. This applies to retirement planning and saving as well as other aspects of financial life. The two phases in everyone’s financial life –– retirement and non-retirement –– while seemingly distinct, affect one another profoundly.

For instance, workers who use payday loans are less likely to contribute to their retirement plans. How can we expect our messages to succeed in directing plan participants to boost their retirement contribution levels when young adults typically enter the workforce saddled with student loan debt? And how can those messages lead to the desired behaviors when plan participants don’t have a solid grasp of financial planning and budgeting concepts?
Many employees need help just to understand budgeting basics, which is fundamental for their current and future financial well-being. How can individuals be expected to set aside enough money to save properly for retirement, or manage their money in retirement, when they haven’t mastered how to make sure that income spent each month doesn’t exceed income earned?

Adults need guidance on how to gain control of their monthly spending habits and how to confront our commercial world by determining wants versus needs.  
This lack of basic understanding and financial self-control has fed a booming payday loan industry that, as noted above, presents an obstacle to broader retirement plan participation.

We need to do more to help our workers understand and manage all aspects of their finances better. That’s a crucial first step in helping to improve retirement readiness and promote successful lifelong personal financial management.

Look for continuation of this blog series discussing adult financial illiteracy.  We welcome you to share your ideas for better financial futures.

Contributors: Charlie Avallone, Jason ChepenikMike Kane, Deb Rubin, Sharon Schmid, Jamie Worrell

Drafting comments to the Department of Labor over the last month, I reflected on the factors that might have inspired sensible regulators to be so focused on price as to conceive the idea of a guide to accompany lengthier 408(b)(2) disclosures.   I have come to the conclusion that the culture of Cheap that has become dominant since 2008 is partly to blame.  Necessity has brought millions to share the belief that cheap is good.  Eager to cater to an audience struggling with declining personal incomes, opinion leaders in the media and policymaking circles reinforced the notion in articles, public speeches, blogs, and social media posts.  The show Extreme Cheapskate televised on TLC epitomizes the cultural wave.  Imbued by the dominant culture, many American workers accept it as self-evident that cheap is good. 

To some extent, the retirement plans industry benefits of cheapskates’ rise in popularity.  The allure of conspicuous consumption impeded babyboomers’ ability to achieve retirement success en masse.   When tightwads are hip and saving is in, money flows to retirement coffers more readily.  Millennials appear on track to achieve retirement success in greater numbers.  It behooves the industry to make this trend a lasting one.  However, it is important that we not get enitrely caught up in the cultural trend.  Cheap comes at a price.  Often, cheap is in bad taste; or cheap breaks down easily.   There are reasons why employers should not buy their retirement plan services on Craigslist or at the Goodwill store.  Plan fiduciaries have an obligation to ensure compensation paid for services provided is reasonable, but they also must act prudently in the interest of participants. 

Emphasizing cost and downplaying benefits in the content of disclosures affects plan sponsors’ choice architecture at the detriment of American workers’ retirement success.  A retirement plan decision maker’s obsession to achieve everyday low cost can affect retirement readiness in undesirable ways.  The urge to cut corners may lead to reductions in services such as participant counseling or in-person plan reviews that undermine the effectiveness of the national retirement system.  Keeping policy makers (regulator or lawmaker) and decision makers (plan sponsor, committee member, advisor, legal counsel, service provider, or investment manager) focused on acting with prudence is critical to the integrity of the system.

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