Are you a procrastinator? Do you get a rush from delaying things until their final deadlines? You’re certainly not alone. Many people will sheepishly admit to sometimes pushing work to the last minute. But it could be a problem if you’re part of the 20% of the population known as chronic procrastinators, whose delays create havoc and undermine goals in multiple areas of their lives.
At the halfway point of 2018, we have to ask: where do you fall on the spectrum? And is your procrastination affecting others? As a plan sponsor, it’s your fiduciary duty to prioritize your company’s retirement plan and participants. So those financial wellness goals you set in January? Pretty important. The pending decisions about plan design? Critical and time sensitive.
First, remind yourself of the priority items for this year. If this was never a discussion with your advisor, schedule a review meeting right now. You need to have a clear picture of where you’re going to determine the steps you should be taking along the way. Analyze what adjustments might need to be made to those goals since a great deal of change can occur over the course of six months.
With regard to financial wellness, consider your employee population and anything you’ve learned about them. Do you know their communication preferences? It may be helpful to integrate those attributes and desires in your overall delivery strategy. Examine the type and frequency of participant meetings. Are your employees engaged? Do they have access to appropriate resources? If the answer to either question is no, consider the changes needed to help your employees retire well. You should also think about how you currently measure the success of your financial wellness program – what are your metrics? What results have you seen so far this year?
Perhaps you want to implement a safe harbor contribution provision in your plan design. Well, don’t delay – missing the deadline can be costly. To obtain the safe harbor exemption from ADP and ACP testing for the remainder of the year and ensure an active safe harbor plan by January 1st, the setup process should begin no later than September 15th. Since you must provide notices to your employees at least 30 days (but no more than 90 days) before the beginning of the plan year, notices should be delivered by December 1st.
So even if you’re infamous for your procrastinating ways, here’s your gentle reminder: your deadline is now. Do the things you’ve been delaying – at least when it comes to your company’s retirement plan.
Because we’re passionate about staying at the forefront of industry trends and regulations, Shepherd Financial recently sent a team to the National Association of Plan Advisors (NAPA) 401(k) Summit. This national conference allows industry experts to interact and share relevant, best-practice strategies for serving retirement plans. Our team highlighted the following topics as key difference makers in the retirement industry, plan administration, benefits collaboration, and plan participant financial wellness:
Industry News: Plan Litigation
The news continues to swirl with lawsuits against corporations, alleging their 401(k) plans have high fees harming employees. Such litigation has brought greater awareness to the fees being charged in plans, as well as a sense of urgency for retirement plan committees to take their fiduciary duties seriously. For example, the duty of exclusive benefit means fiduciaries must be aware of and fully understand all expenses paid from the plan – but it doesn’t end there. Expenses must also be deemed reasonable for the services provided. There is no obligation to choose providers or investments with the lowest costs; the best choice for a plan is unique to the plan’s objectives and characteristics. The most important elements for avoiding litigation over fees come in the form of a consistent process and thorough documentation.
Plan Administration: Committee Relationships
It can be beneficial to establish a committee to assist plan sponsors in the development of prudent processes for plan governance. It’s considered best practice to select a committee chair and establish a committee charter. Utilizing a committee charter to formally authorize the purpose and scope of the committee defines how committee members are selected or appointed, how often meetings occur, and the roles of any outside consultants. Understanding each party’s role, financial liability, fiduciary responsibility, and signing authority can help ease the administrative burden.
Benefits Collaboration: Health Savings Accounts
The buzz continues around health savings accounts (HSAs): they’re the link between health care and finance, but many employees still don’t understand their unique benefits. These savings vehicles provide triple tax-advantaged opportunities (tax-deductible contributions, tax-free earnings, and tax-free distributions), but few are taking advantage. Often confused with flexible savings accounts (FSAs) or health reimbursement accounts (HRAs) and their ‘use it or lose it’ rule, unused HSA funds from the current year roll over to the next year, so participants don’t have to worry about forfeiting their savings. Additionally, employees are often not saving enough to fully utilize the investing capabilities of the HSA – savings can be invested in mutual funds, stocks, or other investment vehicles to help achieve more growth in the account. Clearer education is needed to enable participants to fully engage in their whole suite of benefits.
Plan Participants: Watch Your Language!
The retirement plan experience can be extremely intimidating for participants, and language choices from both plan sponsors and advisors are important. Communication needs to be positive, reasonable, clear, and personal. Participants respond well to a process that is readily accessible, but they first need to hear why they’d want to participate. Using phrases like ‘a comfortable and enjoyable retirement’ and ‘an easy, cost-efficient, and satisfying path to retirement’ resonated well with employees. Each company has unique demographics, so plan sponsors should work closely with their advisor to determine the best language fit for their participants.
This list doesn’t need to be overwhelming – navigate each of these areas by working with your advisor to create a retirement plan strategy every year. Incorporate a formal process that includes regular plan cost benchmarking, a thoughtful examination of plan design, thorough documentation of committee policies and procedures, and honest conversations about how to better equip participants to retire well.
Sir Francis Bacon is often attributed with saying, “Knowledge is power.” While agreeing with the general sentiment, we have learned firsthand that knowledge is often not enough when it comes to personal finances. April is National Financial Literacy Month, and our team believes this is a critical and timely subject. Financial literacy is more than just a general knowledge of money: it is both the education and understanding of how money is made, spent, and saved, as well as acquiring the ability to manage one’s financial resources effectively.
In our industry, it is clear to see how a lack of financial literacy impacts both individuals and the companies for whom they work. It has been well-documented that financial stress increases absenteeism, decreases productivity, and negatively affects retirement and health care costs. So while the issue is personal, it seems naïve to believe employers should have no say in the matter. Considering its impact on physical health, financial wellness needs to have a natural place in the overall benefits package.
When it comes to retirement plan design, adding features like auto-enrollment and auto-escalation are important steps to help employees save (and save more). But plan sponsors should also consider how loans and withdrawals may cause plan leakage – when faced with financial difficulties, if employees can easily pull money back out of the plan, they probably will. However, simply focusing on increasing savings in the company retirement plan as the only financial goal could also be part of a two-fold problem – first, employees may have a variety of more pressing financial needs; second, improving financial well-being must begin with driving actual behavioral change. This involves communication, education, guidance, and resources that are customized for your employees.
Using plan and participant data (ages, current deferral rates, loan balances, etc.) can help dictate relevant strategies for your company. These targeted strategies can have a significant impact on long-term financial security. But keep in mind that creating financial literacy is not a one-time event. Instead, it must be developed over time – for example, learning how to set and achieve personal goals can positively change attitudes toward saving and spending, which can in turn help build a better budget that will actually be followed. It’s also important to engage with employees in ways that matter to them, perhaps by utilizing technology, gamifying financial behaviors, offering rewards, and incorporating overall wellness into the company culture at large.