3 Questions With Aaron Schumm Of Vestwell

By Financial Advisor Magazine

Aaron Schumm, who has spent almost two decades in the fintech and wealth space, is CEO of Vestwell, a digital recordkeeping platform for 401(k) and 403(b) plans.

How did you personally become involved in fintech?

There’s a long and short version of this story, so I’ll leave you with the cliff notes. But essentially, I knew at a very young age that I was going to go into finance. My dad is a retired carpenter, but he always had an affinity for the markets, so we started talking shop early. That set my course in undergrad to go into finance.

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Vestwell Brings All-ETF Target-Date Strategies To The 401(k) Market

By Christopher Robbins, Financial Advisor Magazine

New York-based Vestwell, a digital retirement plan recordkeeper, announced the launch of a service offering all-ETF target-date portfolios for the small plan market.

ETFVest, which Vestwell announced on Thursday, combines 3(38) investment management fiduciary lineup services from LeafHouse Financial, which already acts as a plan fiduciary for private and public retirement plans around the U.S., with an all-ETF target-date portfolio model from Stadion, which specializes in offering customized investment options to the retirement plan market, using Vestwell’s API-driven recordkeeping solution.

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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.


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.


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.

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.

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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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.