With the world in flux and companies trying to adjust to the “new normal”, many employers may not be thinking about their retirement plan. However, with the CARES Act and Paycheck Protection Program their attention may be warranted.
As their trusted advisor, your plan sponsor clients could benefit from considering these three proactive assessments to preempt unwanted plan surprises.
Fiduciary Risk Management
The past few months have been riddled with a series of hefty fiduciary decisions. Many plan sponsors are overwhelmed by trying to understand the impact of the CARES Act, social distancing, CDC requirements, WFH technology challenges, and a myriad of additional complexities brought on by the global pandemic.
In terms of their retirement plan, your clients are having to choose whether or not to adopt CARES Act distribution provisions. This is a fiduciary decision – one that should be thoughtfully considered and documented.
Interestingly, a recent Fidelity study found that approximately 97% of their plan sponsor clients have adopted one or more of the CARES Act provisions. Taking this a step further, they found that just over half of plan sponsors have enabled loan deferments and about half of their plans were able to offer new loans under the CARES Act provisions.
If that isn’t enough, many employers are dealing with unpredictable cash flows and some have been faced with the worrisome choice of cutting or suspending retirement plan matching contributions. Now for your clients that qualified and received PPP loans, they might be excited to learn that retirement plan benefits count towards loan forgiveness. That’s a big win for small business owners.
During the unprecedented chain of events we are seeing unfold thus far in 2020, an extra layer of fiduciary care couldn’t hurt. No matter what your plan sponsor clients decide, it is extremely important that they document why they believe they are acting in the best interest of the participants and their beneficiaries.
As their retirement plan advisor, you now have an opportunity to guide your clients towards sound fiduciary process, including the proper documentation of plan actions.
Projecting Nondiscrimination Testing Failures
A number of extreme measures have been taken to help weather COVID-19, including laying off or furloughing employees, reducing salaries, and reducing or suspending company matches, which can affect the actual deferral percentage (ADP) and actual contribution percentage (ACP) retirement plan test results.
Based on Plan Sponsor Council of America’s CARES Act Snapshot Survey, 16% of companies have had to reduce/suspend company matches and if your client is one of them, they might appreciate this proactive conversation.
Perform mid-year projection testing
Mid-year projections may help anticipate nondiscrimination testing failures and could be an opportunity to help employers get ahead of the issue. These insights can help you determine if your clients’ plans are on the road to corrective distributions and additional actions should be considered. If projections seem to be on track, no harm/no foul, it can be justified as education and due diligence.
However, if the projections point towards testing failure, there are a number of plan design options that can be taken. Depending on the situation, you could speak with a TPA who could educate your client about:
Plan Design Considerations:
- Place an HCE Cap on highly-compensated employee (HCE) contributions for the remainder of 2020
- Keep current plan design practices in place for 2020 and make corrections as needed at year-end
- Amend the current year testing method for the plan year once the matching contributions are reinstated
It is important to note that projection testing is based on an assessment of typical savings patterns, but 2020 has been far from typical. As always, plan actions should be carefully considered and well documented.
Prioritizing Financial Wellness
Financial wellness has been a “hot topic” for years; however, in the wake of COVID-19, related programs will be in extremely high demand.
The 2019 Employee Financial Wellness Survey by PwC showed that even in an economic boom, nearly 3 out of 5 employees said financial matters were the top source of stress. So as we start finding our way to a new normal, implementing a proactive financial wellness program may help offset the negative effects of financial stress, i.e., absenteeism, presenteeism and delayed retirement.
Offering your guidance and expertise on broader financial topics may help strengthen your relationships and help your clients better provide for those employees recovering from financial hardships.
Looking Ahead to Help Your Clients Now
This year is like nothing we have ever seen before. However, by helping your plan sponsor clients anticipate future events, you are saving them future hassle. It’s only in hindsight that we can see what actions we should have taken.
As with ERISA and plaintiff attorneys, if it’s not documented, it didn’t happen. So, make sure your clients are clearly documenting their actions. While this is not top of mind at the moment, it is important to remind clients that they are fiduciaries, which is an ongoing responsibility. Encourage them to take 15 minutes to write down and record why they are/are not updating their plan for the CARES Act and how those decisions are in the best interest of participants.
For clients experiencing changes in their workforces, they might have to make changes to their retirement plan. Better to encourage them to test their plans now when they have time on their side to make adjustments. This could save hours of administrative work and possible future contribution costs.
As you know, the retirement plan industry has been discussing the importance of financial wellness for over a decade. When this storm passes, a financial wellness program should be a topic on all agendas. Smart employers will recognize how a financially-stable workforce has an immediate and measurable impact on their bottom line.
Use these three proactive conversation topics when you meet virtually with your plan sponsor clients to inform them about what they should be doing, thinking about, and working towards because we will get through this; and when we do, everything will be 20/20 in hindsight.
Lastly, while most of our jobs don’t require us to be on the front lines, as a plan advisor, your experience and knowledge are essential.
To learn how Fiduciary Benchmarks Business Management Dashboard and its Sales Funnel and associated tools can help you grow your business, contact us today.
Phone: 866-516-4909 option 4
FBi Tools that Can Help
Value and Fee Benchmarking Report, a peer-to-peer evaluation report that shows a comparison of the existing plan to other similar plans and can provide guidance on how changing certain plan features could help the employer offer a more competitive retirement plan benefit.
Our report follows a 5-step process that is fair and repeatable.
Customize the Benchmark Group. We use numerous factors to build a benchmark group from our proprietary database that is customized for each peer group using mathematical models designed to optimize the degree of accuracy.
Review Service Provider Quality. The DOL has noted in prior rulings that it is allowable to consider the Quality of the Service Provider when determining Fee Reasonableness. We provide a logical framework to analyze this issue.
Assess Scope of Services. We examine the scope of services being provided so plan sponsors can understand how the services they are receiving are impacting the cost structures of the service providers.
Examine Value Delivered. We examine the Value Delivered in terms of helping plan sponsors do their job as a Responsible Plan Fiduciary and to participants in terms of helping them save for retirement.
Evaluate Fees. Finally, we track and compare fees to the Benchmark Group and to FEEPOINT®. FEEPOINT is a proprietary fee calculation designed to account for fiduciary status, extra services and extra meetings that are not found in the typical plan.
Download a sample Value and Fee Benchmarking report by visiting https://www.fiduciarybenchmarks.com/resource-center/
Craig Rosenthal Senior Vice President, Advisor Sales & Service
Craig is responsible for sales, service, product development and partnerships with the Advisor/Consultant, Broker/Dealer, and DCIO channels.