COVID-19 may quickly expose that McKinsey’s 2030 vision report ill-advisedly reprises Mark Hurley’s 1999 logic about classic RIAs as easy marks for ‘enterprises’

By Oisin Breen, RIABiz

But pushing a narrative is a lot easier than proving it, especially when it comes to the long-tail influences of technology, says Aaron Schumm, CEO of NYC retirement-robo, Vestwell, in an email.

“Wirehouses can sell a great story, and they may have a lot of offerings on the shelf. But the back-end architecture is glued together with fragility at best,” he explains. “Slapping a front end user experience onto an old mainframe doesn’t make it modern.”

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Dollar Cost Averaging: Managing Risk During a Downturn

As we navigate this period of market turmoil, there is a great deal of advice around how to manage (or leave alone) your retirement plan. It’s particularly common to hear finance analysts and pundits talk about the benefits of dollar cost averaging (DCA) since it’s a popular way to manage investment risk during periods where the market may be declining or volatile.

According to Investopedia, “dollar cost averaging is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase.” So rather than investing a lump sum, you can invest that amount over a period of time, such as 25% in each of the next four months.

The idea is that diversification doesn’t just apply to investments; it applies to timing. Market timing is impossibly hard, so rather than investing all at once where you can lose a large amount if markets fall, you can invest that sum over a period of time. There’s been a wide body of research on the topic, showing that in periods of market volatility, dollar cost averaging can be very effective.

There are two ways you can use dollar cost averaging with your 401(k):
  1. If you’re putting away a percentage of your paycheck, congratulations! You’re already dollar cost averaging. Keep saving for retirement and follow your retirement strategy.
  2. If you’re thinking about reallocating your portfolio, you can shift your allocation towards stocks incrementally over a period of time rather than immediately.

Outside of your 401(k), if you have money to invest outside of your “emergency savings” and other investment goals, you can practice dollar cost averaging by investing it over a period of time rather than immediately. Let’s say you intend to move $4,000 to an account. Rather than moving it all at once, you can move $1,000 for each of the next four months. In effect, you’re reducing your risk in the event the market continues to fall.

If you’re trying to implement a dollar cost averaging strategy, be sure to ask an investment advisor. Or, if you’re a self-help learner, there are plenty of resources online.

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.

Understanding Recordkeeping Technology

While recordkeeping is arguably the backbone of the 401(k) and 403(b) industry, most providers are trying to service modern day needs with mainframe systems. However, because the technology is so complex, many don’t understand how it truly works and why it has such a significant impact on the cost, function, and service of a retirement plan offering. Join our Founder & CEO, Aaron Schumm, and 401K Specialist Magazine’s Editor-In-Chief, John Sullivan, as they discuss the ins and outs of recordkeeping technology.

This session covers:

  • The How. Inner workings of recordkeeping technology.
  • The Who. Industry players and how they’ve evolved over time.
  • The Why. Why should advisors, plan sponsors, and even participants care?
  • The What Now. What could the future of recordkeeping look like and how can that help you and your practice?

Effective Ways to Manage Your Retirement Plan During Uncertain Times

COVID-19 might be causing a meltdown on Wall Street, but it doesn’t have to create a meltdown in your office. You’re likely facing pressure to answer questions (and maybe even make decisions) regarding your company sponsored retirement plan, so it’s imperative to stay informed. This webinar covers common participant challenges during times of uncertainty and how to address them. We also discuss some of the actions plan sponsors can take should they find themselves required to cut plan costs. Read the full debrief here.

Plan advisers may lose business as 401(k) sponsors struggle

By Emile Hallez, InvestmentNews

Some advisers have indeed been busy, said Aaron Schumm, CEO of Vestwell, which provides digital record-keeping services to about 5,000 plans.

Because of remote work and a standstill in new plan sales, “advisers are probably more accessible than ever right now,” Schumm said. “We’re seeing a high volume of advisers wanting to create proposals for existing clients.”

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FinTechs About Situation Around Coronavirus and Market Recession

By Vasyl Soloshchuk, WealthTech Club

We are all frightened by the uncertainty and global health and economic crisis. Fintech helps people to manage their finance during the crisis and avoid ruining decisions. That’s why financial advice and technology tools they use in their work are now raised in importance. It’s time to ask ourselves, in what the most impactful and non-obvious ways COVID-19 will change financial services?

In this selection, WealthTech and FinTech experts share their outlook and words of support with their business fellows, co-workers, and publicity. Find the motivation to keep trying hard and disrupt the world with wealth technology by reading them.

Aaron Schumm, CEO, Vestwell:

Fast-forward to 2020, we have all enjoyed a bull market exceeding a decade. A downturn was inevitable, but I don’t think anyone predicted the catalyst being a pandemic. The globe has and will continue to be impacted. Things will slow. Balance sheets will be strained, and unemployment will skyrocket in the industries most directly impacted, such as food & beverage, travel, etc.

On the positive side, this recession is not caused by a systemic financial flaw. In 2008, the financial industry was at fault. In 2020, the financial industry is being turned to as part of the solution. Fintech companies are at the forefront and best positioned to be bringing creative solutions to the world. With that, we’ll see immediate movement to a sustained cloud-based world, and focus on digital solutions. The companies that held back on moving to a modern era will now likely turn to those that have been at the forefront of change. This will apply to all businesses, including traditional financial services companies turning to fintech companies for solutions.

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Retiring Soon? Stay Put in the Markets.

By Rebecca Moore, PLANSPONSOR

During this time of painful market volatility, sparked by the outbreak of the coronavirus that causes COVID-19, investors are feeling anxious.

The continued message to long-term investors, such as retirement plan participants, is to stay put in their investment selections in order to benefit from the gains when the market recovers. Aaron Schumm, CEO and founder of Vestwell, a digital retirement platform for 401(k) and 403(b) plans, who is based in New York City, says his firm has seen an increased volume of retirement plan participants reaching out about what to do, and his firm is putting more information into participants’ hands.

He says it is a good time to re-educate participants about defined contribution (DC) plans’ use of dollar-cost averaging. Younger participants may especially need this education as some of them have not yet experienced a down market.

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Unprecedented Times Can Call for Precedented Measures: Exploring Effective Ways to Reduce Retirement Plan Expenses During Uncertain Times

By Allison Brecher, General Counsel, Vestwell

There is not much written about how retirement plan sponsors should weather situations like the one we’re facing now, mostly because these are unprecedented times. However, the virus that’s causing a meltdown on Wall Street shouldn’t create a meltdown in your office. Knee-jerk reactions like eliminating all equities or terminating a plan altogether can have far reaching consequences. While the ideal outlook is to stay the course, we recognize that not all companies are in the position to do so. So what are the most effective options for sponsors looking to their 401(k) or 403(b) plans as a way to manage costs?

Effective Alternatives to Plan Termination.

While staying the course is often the best route in times like these, that’s not necessarily an option for all companies. In instances where short term cash flow is imperative to survival, there are a number of options as it relates to company retirement plans.

1. Consider placing employees on a leave of absence rather than laying them off.

Federal law recently gave states flexibility to provide unemployment benefits in multiple scenarios related to COVID-19. For example, states can now pay benefits where the employer temporarily ceases operations due to the virus, an employee is quarantined with the expectation of returning to work after the quarantine is over; and an employee leaves employment due to a risk of exposure or to care for a family member. Depending on your state, it may be possible and preferable to place an employee on a leave of absence, rather than terminating their employment. During this time, employees remain plan participants, but cannot make deferrals since they will not be receiving a paycheck. This may be an ideal solution for employers who intend to rehire these same employees after the crisis period ends. It also avoids the problem of the plan potentially becoming subject to partial termination rules, which would occur when a  significant number of employees are separated from employment. A partial termination would require immediate full vesting and distribution of  balances for all severed employees, and could otherwise be more expensive for the sponsor.

2. Deploy a partial plan termination.

A plan termination can seem simple at first glance, but it’s anything but. In order to shut down a plan entirely, all balances must be 100% immediately vested which means a sponsor is often paying out company matches earlier than anticipated. Because the plan must promptly distribute all assets, loans must be repaid immediately, potentially creating further hardship for participants. Additionally, sponsors must wait one year after fully terminating a plan before they can start a new one, opening up hiring, retention, and tax implications down the road. Lastly, it’s important to note that termination may not be an option for all plan sponsors (e.g.  when other retirement plans are held or are part of a controlled group of related employers) so it’s imperative to understand plan design.

Instead of a full termination, sponsors can consider a less expensive approach of a partial termination. This generally occurs when an employer terminates a significant percentage of employees, usually about 20% of headcount, or amends the plan to reduce benefits significantly. It’s a facts and circumstances approach and, while it would still require immediate full vesting and distributions to affected  participants, it can be less onerous on the sponsor than a full termination.

3. Explore billing changes.

Some sponsors pay for plan expenses out of the sponsor’s corporate assets. If a plan provider agrees to a bill delay, it could soften the impact during times of crisis. Alternatively, since the decision of whether to pay for plan expenses is a fiduciary decision made by the sponsor, the sponsor that is paying most of the plan-related expenses from corporate assets can shift that burden to the Plan.

4. Reduce or suspend employer contributions.

For some plans, employers may be able to suspend the employer match or profit sharing contribution for up to three years without terminating the plan. For most plans where the employer match is completely discretionary, this is a fairly simple solution that can quickly reduce costs, especially given that most employee matches are between three to six percent. There is no advance notice required and the employer is free to eliminate contributions immediately.  For safe harbor  plans, however, employers must provide eligible employees with notice, the plan must be amended, and the change takes effect 30 days after the notice is delivered or the plan is amended (whichever is later). The plan must also still satisfy certain compliance testing requirements and participants must be given an  opportunity to reduce their deferrals knowing they may not receive a previously expected employer match. With respect to the nonelective contribution, the employer may need to demonstrate a business hardship or economic loss to the IRS.

5. Amend the plan.

Subject to certain limitations, plans may be amended in the middle of the plan year to help sponsors reduce costs. For instance, a plan can be amended to extend the required service period for employees who are not already eligible to participate, thus saving costs. While not always legally required, notice should be provided as soon as possible in order to maintain good will between employees and the employer and to comply with fiduciary responsibility rules under ERISA. Employees may still be upset, but a timely, clearly written notice provided as far in advance as possible might help alleviate their disappointment.

6. Freeze the plan.

Defined contributions plans, such as cash balance plans, can be frozen, which can help reduce a sponsor’s financial obligations in the short-term. Profit sharing plans that do not have any employee deferrals can also be frozen. The frozen plan still remains subject to compliance and minimum funding requirements, but it gives sponsors flexibility regarding plan operations. A plan can either be fully frozen, where all benefit accruals for all participants cease, or sponsors can implement a so-called “soft freeze” option that stops benefit accruals for some employees based on age, tenure, or job classification.

Regardless of which approach makes the most sense, plan sponsors should remember that they’re still fiduciaries who need to act in the best interests of their plan and its participants. Therefore, plan terms must be reviewed carefully before any action is taken and employees should be made aware of any changes. By exploring options and selecting the least disruptive — yet effective — measure, we can try to maintain some sense of stability during a time that is anything but.


Vestwell is not a law firm or tax advisor and we do not offer legal, tax, or investment advice. You may wish to consult your own financial or legal advisor before making any decisions regarding your retirement plan or any distributions.


At the Helm: Advisers and Clients Embrace 3(38) Services


Industry experts agree more retirement plans are selecting “3(38) fiduciary investment management” services from their advisers over “3(21) fiduciary advice services,” and they suggest this trend is not only more beneficial for sponsors and advisers, but for participants as well.

“Originally, the more limited 3(21) fiduciary services were the norm, primarily because the companies advisers were affiliated with didn’t want them to make the final, discretionary decisions as to what a client’s investment lineup should be,” explains Aaron Schumm, chief executive officer of Vestwell. “So, advisers would basically provide sponsors with a list of investment options that they and the sponsor could agree upon—but the sponsors and participants were ultimately left to make their own elections.”

Today, however, the world has moved toward 3(38)-level service, Schumm says, wherein the adviser actually makes discretionary choices about a client’s investments.

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America’s Best Startup Employers

By Forbes

Forbes partnered with market research company Statista to identify the up-and-coming companies liked best by their employees in their inaugural ranking of America’s best startup employers. The list was compiled by evaluating 2,500 American businesses with at least 50 employees on three criteria: employer reputation, employee satisfaction and growth.

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