What’s Trending in Retirement Plans This Spring?
Retirement plans are never dull. Read on for the latest!
Environmental, Social, and Governance Investing
Environmental, Social, and Governance (ESG) investing has really come to the forefront lately, although Europe is ahead of us when it comes to legislation and regulatory requirements. You’ll probably see a lot about the definition of ESG investing, disclosures, how it’s being measured, etc., and as a plan sponsor, you'll need to decide how far you want to take it. Does ESG investing align with your company and employees’ values? Do you want to integrate this as a risk parameter into your investing or emphasize it in your investing thesis? (We support the yes answer and the no answer to this question, but the important thing is that you’ve considered it.)
Lifetime Income on Plan Participant Statements
This is coming soon as part of the SECURE Act -- legislators thought it was important for employees to understand what their balance means in terms of what they will have for retirement. How far does that balance go, and how can your retirement plan generate income for you during retirement? As a result, they have released rules regarding presenting monthly income numbers on the participant statements along with the balance of the account. You’ll probably see it on your June statements; you may have participants asking questions about it and what it means, so heads up!
Merger & Acquisition Activity (and Pitfalls)
There’s been a ton of merger and acquisition (M&A) activity lately, much of it due to business-owning Baby Boomers selling off their organizations. So what does this mean to you if your company got acquired? First, you need to keep on track with your retirement plan and benefits, which are sometimes put on the back burner after a merger or acquisition. Knowing what kind of sale it was (stock sale vs. asset sale) and what the requirements will drive the conversation you need to have with the acquirer; here’s just a sample of what you might ask:
What are we doing with this plan?
What are the differences between our plan and yours?
Does it need to be terminated prior to the sale?
Are you going to be taking it over after the sale is over?
How are we going to merge these two plans together?
When are we going to merge these two plans together? (There’s a grace period, but it may be more advantageous to do it sooner rather than later so you can aggregate the testing and have better results)
There’s also been a lot of M&A activity with recordkeepers in recent years, including some of the bigger names in the industry. This means that if your recordkeeper was recently acquired, you’ll need to do your due diligence and make sure the new platform will meet your and your employees’ needs. For example, how does your payroll get to the new recordkeeper? Will you have to transition off of your current recordkeeping system, and will there be a blackout date? What features does the plan website offer versus what you have now? Is this provider operationally the one that works best for your plan? How do they stack up with other providers in the marketplace?
Remember, communication is key - you need to communicate with employees early and often regarding what they can expect and whether they’ll need to take any immediate actions, such as naming a beneficiary.
“Access” as a Legislative Theme
From a legislative standpoint, there’s been an increased focus on providing more employees access to a corporate retirement plan, and this is a good thing! The Employee Benefits Research Institute has provided data showing that the primary factor that helps an individual to accumulate retirement savings is having a retirement program at work. Employees with access to a 401(k), 403(b) or other workplace plan are 12 times more likely to save for retirement compared to those without one. We also want workers to be able to retire with dignity and on their terms when the time comes. Getting them in the plan is the first step; getting them to save enough is the second step.
The SECURE Act expanded who could be in retirement plans by making part-time employees eligible if they meet certain conditions. This doesn’t go into effect until 2023, but in the meantime it’s important to keep track of those part-time hours. The SECURE Act did not mandate an employer match for part-time employees, but you do have to let them save their own money in the company’s retirement plan.
We’re also seeing a lot with state mandates -- they are starting to mandate that businesses offer a retirement plan, and if you don’t, that you have some other way for employees to save for retirement (such as a state-mandated IRA). If you’re a small or micro business, you can check out the resources we have here on our website; they can help you with setting up a retirement plan. If you’re a bigger business (20 - 2000 employees), reach out to us at hello@retirementplanology.com - we can help you out!