Vestwell and LeafHouse Financial Launch an All-ETF Custom Investment Glidepath Solution for the Small Retirement Plan Market

New offering gives advisors a scalable, tech-forward program with smart investment strategies to effectively support the needs of plan sponsors

NEW YORK, NY, May 27, 2020 – Vestwell, a digital recordkeeper, announced today the launch of ETFVest, a new retirement plan solution that combines 3(38) investment management fiduciary line-up services from LeafHouse Financial with an all-ETF target date portfolio model from Stadion. ETFVest leverages Vestwell’s API-driven tech-forward solution to offer advisors a scalable, cost-effective, managed account solution in the small plan market.

The diverse, multi-manager line-up gives advisors exclusive access to an all ETF custom glide-path leveraging funds from Franklin Templeton, State Street Global Advisors, and Fidelity Investments. These ETF-based model portfolios built by Stadion, with fiduciary investment oversight from LeafHouse Financial, will be delivered through Vestwell’s modernized retirement platform and white-labeled as ETFVest.

“The small plan market is fraught with inefficiencies, so we’re always looking for innovative strategies to more effectively service it in a tech-forward, cost-effective way,” says Ben Thomason, EVP of Revenue at Vestwell. “With no revenue sharing, intra-day trading, low-cost yet highly effective funds, all built into a modern-day solution, we’re excited to bring ETFVest to market alongside some of the industry’s best advisory and asset management complexes.”

Featuring only ETFs with intra-day trading is unique to 401(k)s, but coupling that with funds from three of the industry’s most highly regarded asset managers makes it particularly appealing. In addition to their distinct portfolio construction, which offers the availability of specific beta exposure by factor, asset class, etc., ETFs offer price transparency with no revenue sharing. Additionally, using Vestwell’s intra-day trading capabilities may remove time out of the market as well as implicit trading costs.

“We’re excited to be a part of this innovative, tech-forward workplace retirement solution featuring several of our Franklin LibertySharesETFs, said Kevin Murphy, SVP, Head of Strategic Accounts for Franklin Templeton’s Defined Contribution Division – US. Innovation must be diverse and adaptive, and we feel this solution really checks those boxes with its inclusion of ETFs and transparent pricing delivered through a modernized technology platform.”

“In everything we do, we believe participants come first,” said Todd Kading, President of LeafHouse Financial. “ETFVest is designed to provide participants a low cost, diversified strategy for their retirement plan.”

About Vestwell

Vestwell is the digital recordkeeping platform bringing the 401(k) and 403(b) industry into the modern Fintech era. We have rearchitected the workplace retirement offering from the ground up and built an engine to power the $30T industry. Our customizable, open architecture, and white-labeled platform becomes a natural extension of financial services and payroll partners, while removing traditional friction points plaguing legacy recordkeeping. The result is an easier, more efficient, and all-around better experience for everyone, delivered at a fraction of the cost.

About LeafHouse Financial

LeafHouse Financial is an experienced, national discretionary investment manager and consultant for all types of retirement plans. LeafHouse acts in both a 3(21) and 3(38) fiduciary capacity for a multitude of private and public retirement plans that range from start-up to large institutions across the U.S. LeafHouse developed proprietary technology that is designed to prudently select, evaluate, and monitor investments that are solely in the best interests of plan participants and their beneficiaries. LeafHouse is a registered investment advisor. Registration does not imply a certain level of skills or training. More information about the firm, including its investment strategies and objectives, can be found in our ADV Part 2, which is available, without charge, upon request. Our Form ADV contains information regarding LeafHouse’s business practices and the backgrounds of our key personnel.

The Pros and Cons of Tapping into Your 401(k) in Times of Need

These are uncertain times, at best. And for those of you diligent enough to be saving for your retirement, the volatile stock market has become particularly unsettling. History has shown the best course of action is to take no action at all, so if that’s a viable option, you may want to forget your password for a few months, focus on staying healthy, and revisit your retirement plan assets at a less humbling time. However, we recognize that isn’t a realistic option for everyone. Should you find yourself in a more dire situation, here are the options as they pertain to your 401(k) as well as the various points to consider before making any short-term decisions.  

Temporarily discontinue or reduce deferrals:

If immediate cash flow is more important to you than long-term savings, you should have an easy way to change the amount you contribute each pay period to your retirement plan.

Loans:

If your plan allows it, you may borrow from your own account balance and pay yourself back through loan repayments via a payroll deduction. If your employment terminates, most plans permit loans to be taken soon after separation of employment.

  • Pros:
    • Funds can become available in as little as seven business days.
    • Loan amounts are not subject to taxation and interest rates are likely lower than credit cards.
  • Cons:
    • You will be double taxed on the loan repayments. While loan amounts aren’t taxable, loan repayments are made on an after-tax basis and therefore, you are paying taxes on this money before you have the chance to pay it down. Additionally, if you’re using a traditional 401(k), you will be taxed on this money again when  you take your distribution from the plan.
    • If you take out a loan while you’re still employer and then terminate employment, your plan may require you to pay back the loan quickly and that may cause a financial hardship.


Hardships:

If you find yourself in a time of financial hardship (defined as an immediate and heavy financial need – medical  expenses, burial  expenses, to avoid foreclosure on the primary residence), you may be able to withdraw funds from your plan without facing tax penalties. We are closely watching whether the government will permit hardship withdrawals to be made more easily in today’s unique environment. In the meantime, hardships are only available if the plan allows it – or your employer amends the plan to allow them – and an application with proof of hardship must be approved by the plan administrator.

  • Pros:
    • Funds can be available to the participant within ten business days once your provider receives all supporting documentation in good order.
  • Cons:
    • Once the hardship is taken, there is no option to contribute it back into the plan and, therefore, any losses are locked in.
    • You may be required to take a loan before you can receive a hardship distribution.
    • Taking any money out will reduce the amount you will have at retirement, not to mention that you lose any interest and dividends you earned on the amount withdrawn.


In-Service Distributions:

Some plans offer an opportunity for participants to withdraw from their retirement plan even if they cannot satisfy the hardship standard and while they’re still employed by the plan sponsor. There may be an age requirement to access funds from a safe harbor plan, so be sure to check your plan to confirm whether you qualify for this type of withdrawal.

  • Pros:
    • Participants can generally receive funds from their account within ten days of the provider receiving the request.
  • Cons:
    • As with a hardship distribution, there is no option to contribute this withdrawal back to your plan so you are locking in market losses.
    • Withdrawals reduce the amount you will have at retirement, not to mention that you lose any interest and dividends earned on the amount withdrawn.
    • Some in-service withdrawals may be taxed, especially for participants younger than age 59 1/2.

Please note that there is some talk of forgiving certain penalties in light of the current situation. We will keep you updated on any relevant changes.

Vestwell is not a law firm or tax advisor. Participants may wish to consider hiring their own professional before making any changes to their retirement plan, as there could be tax consequences and other adverse impacts on their retirement plan.

How the CARES Act Affects Defined Contribution Retirement Plans

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) offers new rules for loans and distributions made during the 2020 calendar year:

    • In order to be eligible for any of these new distribution rules, participants must be “qualified,” meaning they are diagnosed with COVID-19 by a CDC-approved test; have a spouse or dependent who is diagnosed; or experience “adverse financial circumstances” by being quarantined, furloughed, laid off, given reduced hours, or unable to work by a lack of child care due to the virus or disease. Plan administrators can rely on a participant’s statement that s/he meets these requirements.
    • Participants can take loans from their retirement plan for the lesser of up to $100,000 or the vested present value of their account; in other words, the maximum permissible loan amount has been doubled. Repayment can be delayed for up to one year with repayments and interest adjusted accordingly. Participants who currently have an outstanding loan with a repayment due after enactment of the CARES Act can also delay their loan repayment(s) for up to one year.
    • Distributions to qualified participants can be made for up to $100,000 with the 10% early withdrawal penalty tax waived. Additionally, the distribution amount can be included in gross income over three years. Participants can repay any distribution back into their retirement plan so that they are not locking in their losses and those repayments would not be subject to the retirement plan contribution limits.
    • Required Minimum Distributions (RMDs) for defined contribution plans can be temporarily waived, allowing participants to keep funds in their plans.
    • Cash balance plans have more time to meet their funding obligations by delaying the due date for contributions during 2020 until January 1, 2021. At that time, contributions will be due with interest. Plans that have not been fully funded as of December 31, 2019, and therefore have benefit restrictions, can continue to apply those restrictions throughout 2020.
    • Plans can adopt these rules immediately even if the plan does not currently allow for hardship distributions or loans, as long as the plan is amended on or before the last day of the first plan year after January 1, 2020. We can assist you in making any plan amendments.

The CARES Act gives the Department of Labor expanded power to postpone certain deadlines, and we can likely expect more guidance soon. There is a chance the 5500 filing deadline will be extended as well.

Vestwell is not a law firm or tax advisor. Participants may wish to consider hiring their own professional before making any changes to their retirement plan, as there could be tax consequences and other adverse impacts on their retirement plan.

Can I Shift Payment of My Company Retirement Plan Expenses?

Even with CARES Act and other relief, many companies are still experiencing financial stress and may wonder if they can transfer some of the costs of operating their retirement plan to participants. As is typical of regulatory questions, the answer is no for some and yes for others as long as certain requirements are satisfied.

Retirement plan expenses that can not be paid by the participant include so-called “settlor expenses.” These are the costs for services that provide a benefit to the plan sponsor, as opposed to plan participants, and generally relate to decisions regarding the amendment, establishment, or termination of a plan. A good example would be the cost for an evaluation of options to reduce the plan sponsor’s contributions to the plan. Sometimes the difference between settlor and other plan expenses is unclear so the Department of Labor (DOL) has published a set of fact patterns that may be helpful.

If the expenses that the sponsor wishes to shift are “settlor” expenses, then the next step is to check the plan documents for a definition of eligible expenses that can be paid by plan assets. This would be a good opportunity to make sure that these are the expenses actually being paid by the sponsor as a way to confirm that the plan documents align with how the plan has been operating. If the plan document does not expressly permit expenses to be paid by the plan, it can be amended to do so. The plan sponsor should also review the plan’s forfeiture account, which may also be used to pay certain plan expenses.

Once the sponsor identifies which retirement plan expenses can be paid for by the plan participants, s/he needs to decide how to allocate the expenses. The easiest option is a “per capita” option to simply divide the expense equally across all participants. For small plans, however, that method could quickly erode the balances for younger workers or participants with low balances. Another approach is  “pro rata” where expenses are spread proportionately among participants based on account balances. This method may impact company owners the most since they often have the larger balances in the plan. Whatever approach you take should be disclosed to participants so that they can make informed decisions about their plan. A clearly worded, transparent communication can help soften the blow.

A company sponsored retirement plan is a valuable benefit, and while plan sponsors may need to reevaluate expenses in times like these, providing employees with a dependable way to save for retirement remains important. There are many aspects of a plan that can be assessed to make times of financial pressure a little more palatable, so be sure to reach out to your financial advisor or recordkeeper to explore options.

COVID-19: The Top 10 Questions Mid-Sized Businesses Are Asking

By Namely

The COVID-19 pandemic continues to present new changes and challenges for businesses and HR professionals daily. We understand that keeping up with the evolving legislation and the never-ending list of outstanding questions can feel impossible.

With help from the HR experts at ThinkHR, we wanted to highlight the top questions we’re receiving from HR professionals at mid-sized businesses—and provide their answers.

1. If employees don’t want to come in to work out of fear of COVID-19, can we require them to?

Typically, employees cannot refuse to work based only on a generalized fear of becoming ill if their fear is not based on objective evidence of possible exposure. However, in these unique circumstances where COVID-19 cases are on the rise and many states are implementing drastic measures to attempt to control the spread of the virus, it may be difficult to prove that employees have no valid reason to fear coming in to work.

This is especially true if your town or city has a “shelter-in-place” or “social distancing” rule in effect. In this case, it may be required to demonstrate to employees that your business is taking active steps to keep them safe. Some examples of this are modifying operations to better support social distancing and regularly disinfecting your office space.

2. Are we allowed to start taking temperatures of employees? If so, how do we go about this? 

The Equal Employment Opportunity Commission (EEOC) now allows employers to take employees’ temperatures during the COVID-19 pandemic. It is important to note that some individuals can have COVID-19 without a fever, so other safety precautions should not be removed just because employees don’t have a fever upon arrival to work.

For a list of other symptoms, visit the Center for Disease Control and Prevention (CDC)’s website here.

If you do decide to screen employee temperatures at work, keep in mind that significant precautions should be taken so that you do not increase risk by reusing a tool that comes into contact with the hands and/or mouths of multiple employees.

3. Under the new Families First Coronavirus Response Act (FFRCA) do we need to provide the required sick leave under this law in addition to the sick leave we already provide? 

Currently, there is nothing in the law stopping employers from creating one comprehensive policy that includes the sick leave required under the FFCRA as well as other sick leave an employer chooses or is required to provide. However, there is reason to be cautious in doing so for two main reasons:

  • When combining policies that intend to meet multiple requirements, you need to make sure to include the most employee-friendly provisions from each; and
  • Additional guidance may be given in the upcoming weeks to provide more details about how this leave should interact with existing leave policies.
4. How is our business supposed to afford the sick leave and FMLA leave mandated by the Families First Coronavirus Response Act?

On Friday, March 20, the U.S. Treasury, IRS, and U.S. Department of Labor announced their plans for making the paid leave provisions in the Families First Coronavirus Response Act (FFCRA) less burdensome for small businesses. Key points include:

  • To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.
  • The Department of Labor will release “simple and clear” criteria for businesses with fewer than 50 employees to apply for exemptions from the leave provisions related to school and childcare closures; and
  • There will be a 30-day non-enforcement period for businesses making a reasonable effort.
  • We encourage anyone with these concerns to read the linked announcement carefully. The full announcement can be found here: Treasury, IRS, and Labor Announcement on FFCRA Implementation.
5. Can we have certain employees work from home, but not others?

Yes. Employers may offer different benefits or terms of employment to different groups of employees as long as the distinction is based on nondiscriminatory criteria. For instance, a telecommuting option or requirement can be based on the type of work performed, employee classification (exempt v. nonexempt), or location of the office or the employee. Employers should be able to support the business justification for allowing or requiring certain groups to telecommute.

6. How do I make sure we are paying people correctly when they work from home?

You will want to pay an employee that is working from home the same way you would pay someone who is working in the office. Have employees log their time as usual for payroll processing. Nonexempt employees should take all the same breaks at home that they are required to take in the workplace.

To ensure employees are actually doing work at home, you can set up regular check-ins to see that things are getting done or have them document and report work completed daily. You may also require that employees remain available online via a messaging app and are available by telephone or for video conferences during working hours.

7. If we close temporarily, will employees be able to file for unemployment insurance? 

Depending on the length of the closure, employees may be able to file for unemployment insurance. Waiting periods range from 1–3 weeks and are determined by state law. Be prepared to respond to requests for verification or information from the state unemployment insurance department if you close for longer than the mandatory waiting period.

8. Can we reduce employee pay due to COVID-19?

Yes, you can reduce an employee’s rate of pay based on business or economic slowdown, as long as it is not done retroactively. For example, if you give employees notice that their pay will change on the 10th, and your payroll period runs from the 1st through the 15th, make sure that their next check still reflects the higher rate of pay for the first 9 days of the payroll period. Keep in mind new rates/salaries must still be at or above the federal or state minimum.

9. Can we reclassify exempt employees to nonexempt if their working hours will be greatly reduced?

If an exempt employee has so little work to do that it does not make sense to pay them the federal or state minimum (or you simply cannot afford to), they can be reclassified as nonexempt and be paid by the hour instead. However, this must not be done on a very short-term basis.

Although there are no hard and fast rules about how long you can reclassify someone, we would recommend not changing their classification unless you expect the slowdown to last for more than three weeks. Changing them back and forth frequently could cause you to lose their exemption retroactively and potentially owe years of overtime.

10. Do we still offer the same benefits during a furlough as we did before? What about a layoff or closure?

It is important to check with your benefits provider before you take action. Eligibility for benefits during a furlough or layoff will depend on the specifics of your plan. For health insurance, if an employee would lose their eligibility during a layoff or furlough, then federal COBRA or state mini-COBRA would apply.

Handling Uncertain Times With Wellness Platform LEON

By Sarah Mooney, LEON

1. This is such a time of personal introspection for everyone, yet there’s still work to be done. How do you suggest balancing the support of employees’ emotional needs with the need to meet deadlines and goals?

Emotions are spiraling because of uncertainty. It’s important to keep everyone grounded, and let the team know that despite the craziness they’re a valuable asset to the company. This enables employees to transition their mindset and focus on deliverables.

It’s also important to let everyone know that what’s happening is temporary, and although things are shuffling, it’s imperative that they realize the work being done is to put growth on hyper speed for when things return to normal.

2. Remote work can be more challenging for some than for others. How do you set your employees up for success knowing they all handle distance differently?

As always clear communication is key. However, there are other aspects that play a key role in building a foundation for remote success.

There’s no doubt that collaboration is becoming a little difficult. While employees were able to speak face-to-face, that luxury no longer exists. Employers need to find a way to enable collaboration. This can be via video conferencing, or mixing up some fun collaboration to boost everyone’s morale. We’ve started offering online virtual fitness events to brighten everyone’s mood and keep positive mentalities flowing. The benefit here is that we’re getting everyone to move and ultimately start producing endorphins in order to help with productivity. With so many distractions around the house, it becomes difficult to be productive. And in order to keep targets on track, and tasks complete within deadlines, you need a productive set of employees.

3. Unfortunately, many companies are having to face layoffs. How do you keep employees motivated when there is so much uncertainty?

Everyone is shaken by what’s happening. It’s important to gain their trust, that way their anxiety hovering around being laid off can be a distant memory.

It’s important to show your employees that their work is meaningful – of value and importance to the company. That way they start to feel a sense of security.

Be calm. Although always needed, it’s even more important now. Regardless of how a boss may feel, employees need someone to look up to for reassurance. An encouraging employer will remain calm, communicating a clear plan for moving forward.

Collectively, these changes can go a long way to retain employees’ trust, and improve their mentality in the face of a crisis.

3 Ways Retirement Advisors Can Create Stability for Plan Sponsors Amid Instability

The past few months have been jarring, at best. Yet for retirement plan advisors, times of uncertainty emphasize the importance of helping plan sponsors with the administrative and fiduciary responsibilities of their company sponsored retirement plans. We asked retirement experts Katrina Bell, CIMA (ZUNA), Tony Fiore (PGIM Investments) and Chris Miller (Pensionmark) how best to respond. They highlighted three key ways advisors can showcase their value amidst these challenging times.

Provide Investment Fiduciary Relief

In times of market volatility, people can become particularly sensitive about the status of their finances. Participants are logging in more, evaluating the investments in their portfolios, and asking questions. Plan sponsors are not only expected to answer these questions, but they also have a fiduciary obligation to give a good one. Tony Fiore points out that this is where having an advisor as a 3(38) or 3(21) can help sponsors feel more secure knowing their investment selections were properly vetted by a professional. Fiore adds that this is a great way to approach a prospective client and say “You have a lot to deal with and a lot to think about…and you have to deal with those participants. You have a fiduciary responsibility. That’s not going to be number one on your list, but it’s going to be number one on your employee’s list.” If you’re approaching a new client, ask them about their investment charter and their investment policy statement. Chances are if they don’t have one, having a retirement advisor step in can make a lot of sense.

Evaluate Other Service Providers

Just as you add value to your clients, other vendors should be adding value as well. Now is the perfect time to take a second look at those supporting your client’s plans and ask how they can do better. Miller had some thoughts, saying, “If you can offload anything for your plans sponsor that you can’t get at with your current solution, look for solutions that do. Because if you’re not, someone else is going to call your client and say “I can do this for you.’” By way of example, Miller shares that several clients are laying off important staff such as HR employees who typically manage payroll. The manual entry process of payroll can take hours each month and choosing a 401(k) that integrates with your payroll provider can offer substantial administrative relief. It’s also worth exploring other value-add services such as purchase payback providers. At a time when many employers are cutting back on matching, this is a great way to direct additional funds to participants’ plans just by purchasing everyday items.

Serve as a Subject Matter Expert

When markets become volatile and sweeping regulation throws traditional rules about plan distributions and loans out the window, sponsors and participants want answers around what they can and should do. Show clients how your expertise in understanding financial markets, investment strategy, and new regulation is of particular value in times of market volatility. You can approach clients with heightened sensitivity to their problems by showing them ways to save money on their plans, alternatives to plan terminations, and what the new provisions mean for them. Katrina Bell noted this was the first thing her team at ZUNA did when the CARES Act rolled out saying, “We were really able to get in there, reviewing contracts for clients, reviewing plans documents, and then consulting with them on how to implement all these provisions and the CARES Act, if they’re appropriate for their business.”

Looking Ahead

Given the financial and emotional strains of the time, additional administrative work and fiduciary obligations are the last thing any HR department wants to worry about, especially in the SMB space. While these three tips are ways retirement advisors add value throughout the entire year, they become increasingly important during uncertain times. As an advisor, you can offer immense support by simply giving clients a call to remind them of the stability you offer amid a time of instability.

U.S. News: Q&A With Vestwell

By Coryanne Hicks, U.S. News & World Report

U.S. RETIREMENT AND pension plans are nearly a $670 billion market with an average annual growth rate in the last five years of 6%, according to IBISWorld. It’s an enticing market, but one registered investment advisors, RIAs, have often shied away from out of fear of the archaic technology traditionally used to run it.

In addition to being one of the largest finance and insurance industries in the U.S., the retirement plan industry is also one of the oldest. This means a lot of the industry’s operations were put in place well before the dawn of the internet. In some respects, the industry has been slow to adapt.

It’s time to change that, according to digital retirement plan provider Vestwell. The company says it’s time the 21st century comes to the retirement plan industry, starting with a modernized, digital platform that allows advisors to more efficiently sell, manage and scale their retirement business.

Read interview excerpts from the conversation with Vestwell’s founder and CEO, Aaron Schumm, on how his company is digitizing the retirement planning industry.

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Four years into startup, Vestwell makes its big move — nixing FIS’s recordkeeping for the 401(k) super-bot it built with Goldman Sachs’ VC money

By Lisa Shidler, RIABiz

After four years in business, Vestwell is gearing up to become a turnkey 401(k) program on behalf of RIAs — a software change that could be like swapping a Model T for a Tesla — with some heated industry debate about whether that really makes a competitive difference.

The New York-based startup that Aaron Schumm founded in 2016 plans to deliver more “digital” data that helps RIAs — most of whom currently specialize in 401(k) or non-401(k) assets — create an investor experience that unifies those spheres.

The goal of Vestwell’s data harmonization is to get more retail RIAs to tackle plan sponsors and plan participants.

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Practical 401(k) Advice to Clients Amid the Market Dip

By Kate Stalter, U.S. News & World Report, via Yahoo News

The COVID-19 crisis is shining a spotlight on employer-sponsored retirement accounts such as 401(k)s. Long-standing rules have been relaxed, and investors have new options for making withdrawals.

These changes were put into law last month as part of the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act.

Financial advisors are also being more proactive in helping clients with these employer-sponsored vehicles, which are usually held outside the investment accounts an advisor manages.

For starters, 401(k) account owners can now access up to $100,000 penalty free if they, a spouse or dependent suffer adverse consequences — either health or economic — due to the virus.

Also, 401(k) loan limits have been raised. “Before this crisis, loans were limited to the lesser of $50,000 or half of the vested balance in the participant’s account,” says Allison Brecher, general counsel at Vestwell, a New York-based retirement plan administrator.

“The CARES Act increased that to the lesser of $100,000 or the full present value of the participant’s vested account balance. Loans, even from a participant’s own retirement plan account, do need to be repaid, but the repayments (on outstanding loans) can be delayed by up to one year,” she says.

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