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The Retirement Advantage: How company sponsored retirement plans impact consumer behavior

 

retirement advantage

While it’s well documented that the majority of Americans aren’t saving enough for retirement, having access to a company sponsored 401(k) or 403(b) plan can greatly impact their retirement readiness.

According to our survey, employees are taking advantage of retirement plans when given the opportunity. 76.7% of those with a company sponsored plan are saving 4% or more of their salary each month (excluding any additional savings from a company match). Not only are those with access to a plan saving, but they also feel confident about decisions regarding their plan. In fact, 62.5% say they’re comfortable with their knowledge around their retirement plan, which means people are either educating themselves or receiving proper education from the plan administrator or sponsor. This highlights the critical role employers play in their employees’ financial future, since simply offering a retirement plan appears to have an immediate and real impact on both security and confidence.

In February 2019, Vestwell conducted a study of 672 employees who were eligible to participate in their company sponsored 401(k) or 403(b) plans, 499 of whom completed the survey in its entirety. The intent was to gauge perceptions of saving for retirement and better understand participant engagement with their plans.

Take a peek at Vestwell’s  2019 participant attitudes report to find out more about employee perceptions and how they engage with their plans.

Vestwell Finds New Small Business Payroll Partner

small business payroll

Vestwell is partnering with small business payroll software provider OnPay, the company announced. The partnership is designed to make providing small business benefits easier for CPAs, advisors, plan sponsors and participants by providing turnkey retirement offerings.

The integration will give “advisors a more expansive solution for their clients, [while] offering plan sponsors an easier way to administer plans,” said Aaron Schumm, founder and CEO of Vestwell. “Having an advisor that can step in alongside a CPA and create a custom retirement plan is a fantastic value-added service.”

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Vestwell Announces Partnership with OnPay Giving Advisors Access to Online Payroll Service

online payroll serviceNEW YORK, NY, February 20, 2019Vestwell, a digital retirement platform, today announced they have partnered with OnPay, the top-rated online payroll service serving small and medium-sized businesses. The complete integration between the two modern-day technologies means that plan sponsors now have access to a turnkey retirement offering with seamless data flow between their payroll and retirement plan providers.

Vestwell and OnPay both service plan sponsors through a co-branded experience that gives advisors and accounting firms the ability to support clients with a customized and cohesive experience. Through this new relationship, accounting firms who leverage OnPay’s technology now have a retirement plan offering that simplifies their client’s ability to offer tax advantaged plans. Vestwell advisors whose clients still use antiquated payroll solutions can migrate towards a modernized offering that syncs directly with their retirement platform.

“At Vestwell, we are committed to making retirement plans easier and more accessible for all involved,” said Aaron Schumm, founder and CEO of Vestwell. “Integrating OnPay into our platform does this by giving advisors a more expansive solution for their clients, offering plan sponsors an easier way to administer plans, and providing participants the peace of mind they deserve.”

Integration with payroll is a key pain point of traditional retirement plan offerings, and the Vestwell and OnPay relationship underscores a joint commitment to helping small businesses transfer funds and data without the complications of disparate systems. Working in tandem, the systems streamline administration across paychecks, taxes, and compliance, freeing up time to focus on competing priorities.

“We are continually looking for opportunities to help our clients eliminate manual processes and access all the information they need to make informed decisions,” said Mark McKee, President and COO of OnPay. “Our relationship with Vestwell expands the ways in which we can make business easier for them while painting a clearer financial picture. It also makes it much easier for small business owners and their advisors to offer the benefits their employees want the most.”

About Vestwell Holdings, Inc.

Vestwell is a digital platform that makes it easier to offer and administer retirement plans. Vestwell removes traditional friction points through flexible investment strategies, fiduciary oversight, and streamlined administration, all at competitive pricing. By acting as a single point of contact, Vestwell has modernized the retirement offering while keeping the plan sponsor’s and plan participant’s best interests in mind. Learn more at Vestwell.com and on Twitter @Vestwell.

About OnPay

 OnPay’s mission is to help every small business run by making payroll, HR and benefits easy, affordable and mistake-free. OnPay launched in 2009 as the subsidiary of a traditional payroll company. The team’s deep history with payroll helps OnPay deliver an approachable payroll solution that accommodates companies in every industry, as well as their accountants and bookkeepers. PC Magazine gave OnPay an “Excellent” rating, and the company has earned five out of five star ratings for its payroll solution on Capterra, earning awards for ease of use and best customer service. Learn more by visiting OnPay.com.

Media Contact:

Jessica Torchia

908-872-7319

Jessica.Torchia@ficommpartners.com

 

3 Steps to a Smoother Plan Audit

audit

By Allison Brecher, General Counsel, Vestwell 

If your plan has 100 or more participants, it’s time to prepare for an annual plan audit. A typical audit examines two things: compliance with various tax and regulatory requirements and the accuracy of financial reporting on the plan’s Form 5500. Whether your plan already has 100 participants or you anticipate growing to this size in the future, there are steps you can take now to make the audit process go more smoothly – and save you some headaches along the way.

1. Collect Important documents

Every audit is different, depending on the nature and complexity of your plan, but one thing is certain: the auditors will want to see documentation. These documents must substantiate the amounts selected for processing contributions, benefit payments, deferral changes, and all other employee and employer contributions. As a best practice, keep the following documents in an easily accessible place:

  • Adoption agreements and amendments
  • Payroll files
  • Benefit selection forms
  • Contracts with plan service providers
  • Meeting notes from plan sponsor’s benefit committees, if applicable
  • All other plan-related documentation

As a best practice, work with your recordkeeper to store and coordinate the delivery of these documents to the auditor.

 

2. Make sure your plan’s operations follow the plan document

Once you have collected relevant documents, ensure your plan’s operations are running as outlined. You can save considerable time by reviewing the plan documents for ambiguous provisions as well as by making sure the plan is being administered in a way that’s consistent with the your intentions. This includes looking at things such as the effective date of plan amendments and current loan policy statements. Make sure the plan’s service providers also have the current plan documents and confirm they are following them.

One particular area to focus on is defining what “compensation” is eligible for deferrals and employer matches. Some plans define compensation as “all compensation reported for W-2 purposes” which would include salary, tips, and bonuses and exclude moving expenses and deferred compensation. A mismatch can occur when the payroll system is set up without aligning with the plan’s definitions, resulting in overpayments to participants. This can be a time consuming and expensive issue to correct down the road.

 

3. Automate processes where possible

Manual procedures are prone to error, so evaluate areas where administration can be automated. For example, auto-enrollment and auto-escalation are effective ways to ensure that all eligible employees are aware of your retirement plan offering and have the opportunity to participate or opt-out. Another good automation is around payroll integration. Ask your recordkeeper if it can obtain payroll files and data fees directly from your payroll provider so that you don’t have to spend time following up with your employees. This will minimize the risk of denying eligible employees access to the plan.

Going through a plan audit can seem like a daunting task, but taking the time to prepare in advance will make  managing your fiduciary responsibilities much easier. Between collecting plan documents, ensuring you and service providers are aligned, and automating processes, you’ll establish habits that help keep your plan compliant this year and for years to come.

Saving For Retirement Is Important: What Happens Next?

Sound Strategies for Moving from Accumulating Assets to Withdrawing Them

retirement

A 401(k) plan has long been considered the entryway to investing for retirement. Over time, hard-earned money has been saved, compounded, and grown. But what happens when investors are nearing retirement age, and it’s time to take the money out?

At that point, doing the right thing for their nest egg is more crucial than ever. Unfortunately, for those plan participants who are approaching retirement, there’s no clear-cut “soft landing” for their 401(k) investments. The accumulation phase — the long road of disciplined savings — now seems like a walk in the park compared to new worries about turning that savings into income in retirement.

Wanted: A Post-401(k) Retirement Strategy

The marketplace needs better strategies and workplace systems when it comes to post-401(k) money management options. Unfortunately, many employers don’t have the tools or incentive to assist their employees with “nearing-retirement” stage strategies. For those employers who do understand the need to help employees at this stage, they may feel handcuffed as there are no clear-cut fiduciary safe harbor protections, similar to the kind offered during accumulation, to incentivize employers to start rethinking this near-retirement conundrum. Therefore, plan sponsors generally offer little, if any, help when it comes to managing balances around retirement time.

Introducing the Managed Outcome Plan

A “managed outcome” plan is one solution that could provide a sufficient lead-up to garnering income in one’s retirement years. Just like with managed investments such as Target Date Funds (TDFs) that are geared towards savings, a managed outcome plan option for those nearing or entering retirement could meet criteria based on a person’s age, years in retirement, and desired lifestyle. Managed outcome plans seek to achieve specific objectives, such as target returns, risk mitigation, protection of asset values while nearing retirement, and guaranteed levels of income while in retirement with the ability to customize by individual participant designed to meet their own needs.

Worthy Mention: The “Negative” Enrollment Option

Another possible solution could be to offer a “reverse” enrollment option for those nearing retirement. Under this option, some percentage of current funds and future contributions would be automatically invested in managed outcome plans geared towards protecting the accumulation that has been built while still offering the potential upside of market participation and the benefits this can provide to avoid sequence of returns risk. This is the risk to sustain a fixed standard of retirement income if the investment portfolio experiences large negative returns near retirement. And, plans could be tailored to include an auto-enroll function rather than wait on the participant to choose. Analysis Paralysis shows that when presented with a confusing option versus doing nothing at all, most will often do nothing; this behavior could jeopardize a participant’s retirement savings and future income.

Employers Can Get Onboard

One overriding solution is to provide employers with a level of fiduciary protection in providing these solutions. For example, fiduciary relief could be extended to sponsors if they offer auto- enrollment systems like the ones we find in the accumulation phase. Participants could elect for plan managers to oversee a certain percentage of their 401(k) balances via a managed outcome solution; plan sponsors may like this option, too, as it absolves them of certain fiduciary obligations. Plan sponsor protection, in addition to participant guidance, would focus on participants’ options based on their time until retirement and could help them make better choices when it comes to spending and earning during those years.

Congress Can Get Involved, Too

These solutions won’t be mandatory unless retirement plan providers, plan sponsors, record keepers, and investors demand more choices and opportunities to better manage their 401(k) funds in retirement. And what better way to enforce the solutions that are available to the majority of investors than by making it law? Back in 1978, Congress passed the Revenue Act, which created the ability for employees to avoid being taxed on deferred compensation. Since then, Congress also passed the Pension Protection Act in 2006 to ensure that employees receive their full pension payouts. Now, it’s time for Congress to enact rules that can assist individuals as they transition their 401(k) assets into retirement.

What’s Next

According to AARP, from now until 2030, an estimated 10,000 baby boomers will reach retirement age every day — that’s seven baby boomers hitting age 65 per minute. They must be prepared to make the critical transition from accumulating assets to withdrawing them. And those withdrawn funds may need to last for ten, 20, or even 30 or more years. As a result, our industry — including investment companies, insurance companies, financial professionals, plan sponsors, and regulators — must help create more sound withdrawal strategies to match our retirement strategies. Managed outcome plans and negative enrollment options can be simple, practical ways to help participants manage withdrawals and prepare for their lives beyond retirement.

This content is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not give fiduciary, tax or legal advice. Clients are encouraged to consult their tax advisor or attorney.

Guarantees are backed by the financial strength and claims-paying ability of the issuing company

Investments will fluctuate and when redeemed may be worth more or less than originally invested.

Multiple Employer Plan Solutions on the Horizon

multiple employer plan

Multiple Employer Plans (MEPs) have garnered quite a bit of attention recently as lawmakers continue to discuss ways to provide small employers with more opportunities to offer retirement benefits for their employees. There are many benefits to Multiple Employer Plans (MEPs), especially in the small plan market.    However, the question looms, are these plans right for every small business?

How to Know When It’s Time to Switch Your Service Provider

service provider

By Allison Brecher, General Counsel, Vestwell

The new year is a great time to take stock of your company offerings and, for plan sponsors, that should include a thorough review of your retirement plan. With fiduciary duty on the line, not taking the time to carefully review and make any changes can be a costly mistake. But how do you know when it may be time to pull the plug and switch your service provider, rather than just make tweaks to your plan? Here are some things to keep an eye out for.

Your service provider is not proactive about compliance and/or charges extra to keep your plan compliant

Tax savings is often a main driver for offering a retirement plan, but your plan can lose its tax qualified status and fiduciaries can become liable for potentially significant penalties if your service provider falls short on compliance. Is your recordkeeper proactively monitoring your plan and complying with the legal and regulatory requirements? Or does it only get involved after an issue arises, which can be years later and typically more time consuming and costly to correct? Does your provider review your plan documents for compliance with changing regulations and prepare any necessary amendments?  Or do they alert you to regulatory changes and leave the rest in your hands?

Your service provider does not have adequate data security protections

Think about the kind of data your service provider has on your employees and then think about what can happen if that data gets into the wrong hands. A data breach can put your employees’ personal information at risk, create strained relationships with your workforce, and expose company fiduciaries to liability. It’s important to know how your service provider protects your employees’ information and what it will do when something goes wrong. Most importantly, your provider should:

Have information security protocols in place that have been independently tested and verified by outside experts. In particular, your provider should encrypt all of your employees’ data and store it securely at all times.

Stand behind its procedures by agreeing to pay for and handle instances when data becomes compromised.

Be willing to report any data security incidents to you within 24 hours.

Have cyber coverage to make sure your company is protected and that the amount of coverage is sufficient.

Always be able to restore employees’ data and accounts with minimal or no downtime and disruption. Especially in the current volatile market, your employees should be able to access their accounts 24/7.

Your provider’s fees are unreasonable

It is critical to dig into the details of your recordkeeper’s fees, especially in light of the numerous class actions where plan sponsors and fiduciaries are being sued for operating a plan with allegedly excessive fees. You do not need to select the least expensive provider, but you do need to make sure the fees are reasonable for the services provided. Some things to look out for include:

Fees that are disguised by being included with mutual fund expenses  – – sometimes in the proprietary funds offered by affiliates of your recordkeeper – – that are then kicked back to the recordkeeper. Make sure your provider has disclosed all such conflicts of interest.

Services that cost extra, since some providers will charge sponsors for things such as compliance activities and plan document reviews.

Fees that are reasonable in comparison with others. However, you  cannot know for sure whether a service provider’s fees are reasonable until you ask and shop around. You can do that by getting proposals from other providers or benchmarking their fees. If you determine that your provider’s fees are excessive, you have no choice but to get them reduced and, if your provider refuses, you must terminate them in order to avoid violating your fiduciary duties.

Advisors have a golden opportunity to help sponsor clients understand what they’re getting and the reasonableness of the charges. While some plan sponsors may want to avoid change due to the change management associated with switching providers, the implications of staying with the wrong provider are far greater.

Vestwell Inks a Deal With BNY Mellon

BNY Mellon
Bank of New York Mellon and Vestwell are entering a partnership that will give the bank a technological boost as it embarks on a foray into service offerings for state-sponsored retirement plans. The bank signed Vestwell as an affiliate, meaning several of the banking behemoth’s units, including BNY Mellon Custody, Pershing brokerage services, Lockwood asset management and retirement plan management solution, Sumday, will all have access to the newly signed firms’ homegrown retirement plan-focused interface.

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Not Knowing Your Plan’s Fees Can Cost You Plenty

By Allison Brecher, General Counsel, Vestwell

In order to make good investment decisions, it’s important to be informed. Yet one of the more impactful components of any retirement plan is also the area where employers and participants tend to feel least clear: plan fees. While fees are not the only consideration when creating your portfolio or selecting service providers to the plan, high fees can erode retirement savings for participants and can create fiduciary – ie: personal – liability for you, the plan sponsors.

Despite the risks, many sponsors don’t take the time to carefully examine their plan fees or, worse yet, needlessly increase their risk by overpaying service providers who may be charging “hidden” fees. What you don’t see can hurt you, but what questions should you ask to prevent these pitfalls?

First, let’s understand what services are being provided to a typical retirement plan. There are three general categories:

Investment advisory – investment advisors select the investment lineup that they believe is suitable for the plan.

Administration  – recordkeepers and other service providers keep track of the transactions in your account, such as payroll deductions and employer contributions, and make sure the plan is operated in compliance with legal and regulatory requirements.

Direct charges – participants and sponsors are charged for services specifically provided to them, such as for loans, hardship withdrawals, or amending the plan.

All of these services are necessary to successfully operate a qualified retirement plan and, while there is nothing wrong with getting paid, the challenge is to understand how these service providers get paid, the reasonableness of the fee in light of the value of the services, and whether the fee has been disclosed. Unfortunately, it is often not as simple as just asking the service providers because these fees can be embedded in the expense ratios of the mutual funds offered in the investment lineup.

Given all this, how can you get to the bottom of what you’re actually paying and what you’re getting in exchange for those fees?

1. Start with the documents

You should have just received year-end fee disclosures that list all of the expenses paid by the plan. Those notices and the plan’s benefits statements will help you understand the total plan-related fees charged to their account. The plan administrator should be able to provide a list of all direct service charges. All of the expenses paid by the plan or individual participants should be clearly itemized; if they are not, you should probably ask why.

2. Understand share class

Very large employers get the benefit of being able to invest in institutional share classes, which often have lower costs. Some mutual funds create a share class specifically for smaller retirement plans, called Sub-TA fees, which include the fees paid to recordkeepers, plan administrators, or other providers. In other words, the providers’ fees are aggregated with the mutual funds’ expenses and therefore make it impossible for plan sponsors to separately identify and benchmark them. However, you can ask for them to be itemized separately. If you don’t know or understand your share class, you should find out. If you are in one with a high cost, you can insist that your plan be placed in one with lower expenses.

3. Understand conflicts of interest

If your plan provider is an insurance company, there is a good chance your plan’s investments are variable annuities and not mutual funds. Variable annuities are mutual funds owned by an insurance company “wrapped” or protected by an insurance policy, thus increasing expenses with “wrap fees,” surrender charges, or sales commissions in the process. Those fees can turn a low cost mutual fund into an expensive and illiquid investment. The same could be true for plans supported by a mutual fund provider, which has a built-in incentive to use its own funds as part of the investment lineup. Conflicts of interest are not inherently wrong; they just must be disclosed so that the plan sponsor can make informed decisions.

4. Ask about revenue sharing

While the word “kickback” could make you cringe, revenue sharing is just that—a payment made by a mutual fund to compensate service providers that use their funds. Salespeople, brokers, and insurance agents may receive finders’ fees for bringing new business to the mutual funds or negotiated loyalty incentive compensation. Regardless of the type of fee, they are all revenue sharing and they increase the investment’s expenses and reduce investor returns. Sometimes these fees are disclosed as 12(b)-1 fees, but sometimes fund companies pay different levels of fees through multiple share classes. You should ask your investment advisor or read the prospectus. Don’t overlook footnotes about how your plan expenses “may notinclude any contract-level or participant recordkeeping charges. Such charges, if applicable, will reduce the value of a participant’s account.” That is likely a red flag telling you there may be hidden fees.Ask your investment advisor whether it is receiving 12(b)-1 fees, the annual value of those fees, and whether your same mutual funds can be purchased for a different share class with lower revenue sharing fees.

5. Investigate transaction fees

These fees can be especially difficult to understand, yet they are one of the largest expenses that a participant can bear. Every time a mutual fund manager buys or sells the underlying securities within a mutual fund, there is a cost to the trade. Actively managed funds have higher transaction costs than passive funds, like index-based funds, and the participants’ investment returns are reduced by the cost of those trades. While transaction costs cannot be avoided entirely in actively managed funds, they can include brokerage commissions and other compensation paid to the service provider that should be scrutinized. Transaction fees can be found (often with some difficulty) in a fund’s Statement of Additional Information and annual report.

So how are the fees justified? There is nothing wrong with compensating service providers; again, they perform necessary services to successfully operate a qualified retirement plan. But sponsors must ask what services justify these fees and whether the provider yielded material results for participants and beneficiaries. In short, the question fiduciaries should be asking is:  Do these fees exist to pay for reasonable, legitimate, and valuable services that benefit participants of qualified retirement plans and enhance their retirement security?  Or do they exist to support the financial services industry at the expense of participants?

You can largely avoid these issues altogether by investing in lower cost mutual funds, like Exchange Traded Funds or Target Date Funds, and consider using service providers that are not financially incentivized to use certain mutual funds as plan investments. You should be asking yourself the ultimate question regularly:  Have I properly investigated and paid only those fees that were appropriate and reasonable? Hopefully after addressing the questions above, your answer will be “yes”.