Curcio Webb has supported hundreds of organizations select and manage their employee retirement plans by finding and managing the right providers and investments.

Covid-19 Impact on Employee Benefits Administration

Covid-19 Employee Benefits Administration

We recognize that your organization is undertaking some difficult decisions regarding your workforce and benefits.  Curcio Webb has been evaluating how COVID-19 could potentially impact your employee benefits and administration.  We are sharing some thoughts around the impact to health and welfare and retirement plan administration. We are available to discuss the implications to your organization as not all items apply to every plan sponsor. We recommend discussing any changes with your ERISA counsel prior to implementation.

Health and Welfare

  • Dependent Care Flexible Spending Accounts 

    Many organizations allow employees to contribute to a Dependent Care Flexible Spending Account.  Many employees will not need these dollars as child care facilities are closed, employees are working from home and can provide this care, or family members have lost income and the employee is not able to make contributions.  While the reality of the current situation may not be classified as a “life event”, some employers are interpreting the current situation as such.  Employers may consider allowing employees to stop contributions and provide permission to administration providers to accept dependent care contribution changes.  

  • Employee Layoffs & Furloughs 

    We expect many of our clients will need to lay off or furlough employees.  This will increase the number of participants on COBRA.  Many health and welfare administration contracts are structured where the provider 1) charges per COBRA enrollment kit, or 2) charges a higher fee for COBRA participants over active participants.  Employers may look for relief from these added fees as this could be a substantial unexpected cost.  Also, if an employer is planning to subsidize COBRA coverage for laid-off or furloughed employees, we suggest reaching out to your administration provider as soon as possible.  Some arrangements may take time to set up and you’ll need to confirm how you will identify affected employees.

  • Unpaid Leave

    Some organizations are considering placing employees on unpaid leave instead of laying them off in order to continue providing active benefits (with some employer subsidy rather than making employees pay 102% of premiums for COBRA).  This may trigger direct billing of premiums to these participants which typically adds cost under the H&W administration contract.  Employers may want to consider placing these employees in deduction arrears – and allow employees to make-up the employee cost at a later time.

  • Working from Home

    Administration providers are already feeling the pressure of their employees working from home.  This will likely have a trickle down impact on annual enrollment planning and potentially providers’ ability to staff additional annual enrollment customer service.  Also, your ability to manage annual enrollment activities is likely compromised due to other priorities.  We recommend conversations with your provider on realistic annual enrollment schedules and expectations.  In addition, consider making few changes for 2021.

  • Temporary Salary Reductions

    Some of our clients are considering temporary salary reductions for specific populations.  If your organization considers this, be sure to identify exactly how salary data will go from your organization to your administration provider, and how life insurance and disability coverage (and other salary-based benefits) should be calculated during the temporary reduction period.

Retirement

  • The impact of laying off, furloughing employees, or placing them on unpaid leave has a potential significant impact to 401(k) plans.  If employees are no longer “active”, they may not have access to loans. Plan sponsors may need to review their loan eligibility requirements. 

  • The “coronavirus-related distribution” is a new distribution type that is available to active and inactive employees.  We suspect many recordkeepers will not be able to set up the new distribution type very quickly, and will leverage hardship withdrawal functionality.  Since hardships are considered an “in-service withdrawal”, the standard recordkeeper functionality may limit access to populations.  Plan sponsors should confirm accurate setup of this distribution with their provider.

  • Many organizations have loan initiation fees (typically $50-$100).   Some organizations are also charge a hardship approval or hardship/distribution processing fees (often $25-$50). Given that many employees may require cash, employers may want to consider waiving loan and distribution fees.  The added loan and distribution volume will ultimately add revenue to the 401(k) providers.  We expect providers will partner with clients that want to institute this change (as providers should not be profiting from the added volumes).

  • The new regulations stipulate a suspension of loan payments for one year for qualified individuals.  Some recordkeeper arrangements require participants to pay loan maintenance fees.  Organizations should confirm that their provider is waiving these fees in light of no loan repayment processing and extension of the loan terms.

  • Many plans do not have a partial distribution option in their 401(k) plan.  Terminated employees that have left their money would be forced to take the one-time “coronavirus-related distribution” or a total distribution to get access to money.  Plan sponsors may want to consider amending their plan to allow for partial distributions.

  • The “coronavirus-related distribution” appears to have minimal documentation requirements (i.e. employee self-certification) as opposed to standard hardship withdrawals where employees provide proof of need. Cyberthieves may see this as an opportunity to fraudulently access employee accounts for money.  We recommend conversations with your 401(k) providers around data security:  How will withdrawal verifications be performed?  Will wait periods on changes to banking information be enforced or waived?  For employees who have forgotten their PINs/passwords, what security will be performed to ensure employee identity (as we suspect you will not make employees wait for a new PIN in the mail)?

  • Similar to the point above on population salary reductions, many plans provide a fixed retirement contribution based on pay.  Plan sponsors should be considering the potential impact to these contributions (data to the provider, are contribution reductions intended, etc.).


As a side note, many administration providers offshore portions of benefits administration to India.  In light of India requiring work-at-home arrangements, data security of anything processed in India needs consideration as the standard data oversight in offices is no longer applicable.   We recommend employers have conversations with their providers on how they will ensure data protection in their offshored locations. 

We hope you find these thoughts useful.  As we continue to have conversations with clients on their issues and think of other benefit implications, we will be sharing.  We recognize that many of these items require conversations with your providers.  Please reach out if you would like assistance with any of these discussions. 

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Influencing Retirement Saving Using Social Media

Saving for retirement is a good financial habit to learn in those early employment years. Many published studies and white papers point to the need for broad-based financial education, targeted to defined populations, and personalized to meet their individual needs. Plan sponsors and defined contribution (401(k)) plan administration providers may need to leverage multiple communication channels to reach diverse audiences. 

Influences of Gen X, Millennials & Gen Z  

Gen X (born in 1965 – 1980), Millennials (1981 – 1996) and Gen Z (1997+) are influenced differently by the social, economic and world events that occurred during their lifetime, including how they engage online.  

Many Millennials entered the workforce at the height of the economic recession, which impacted their employment choices and future earnings. Additionally, they experienced the internet explosion – social media, ongoing connectivity through mobile devices and 24/7 on-demand entertainment.  

These Millennials are now employees in their 20s and 30s who can participate in a company’s 401(k) plan and save outside of work. Because this group tends to routinely utilize social media sites, plan sponsors have the opportunity to reach these employees online to influence their saving behaviors. Gen Z appears to be even more tied to the “always on” technological environment.  

How Does Social Media Influence Millennials? 

Social media offers a vast array of personal finance, money and investing educational materials via podcasts, videos, blogs, and financial planning tools, etc. that individuals leverage to manage their finances including paying down student debt and saving for retirement.  

One potential means of helping Millennials to save is to share tips on what people in their income profile are doing to successfully save.  

However, social media can also lead to a Millennial’s financial downfall. Based on a study by Allianz Life®, Millennials respond to peer pressure1. About half of this survey’s participants noted a fear of missing out (FOMO) and would spend money that they did not plan because of pressure from social media sites.  

The FIRE Movement  

Although many Millennials struggle to save, there are those who have saved significant balances seeking financial independence. The FIRE (Financial Independence, Retire Early) movement’s objective is to accumulate assets by simple living and low-cost passive investments until they have accumulated enough money for ongoing living expenses. This model gained significant interest through online communities, blogs, podcasts, and discussion forums. Once the individual reaches their goal, they either can retire or embark on a second career.  

Ways to InfluencFinancial Behavior of Millennials  

Plan sponsors and defined contribution administrators have new opportunities to assist Millennials to proactively manage their money, including saving for retirement and paying down debt, especially student loans and credit cards.  

Here are some methods providers are using today:  

  1. Website Many provider participant websites offer educational videos on various financial topics and budgeting tools.  
  2. Social Media Some providers actively engage with participants on Facebook, Twitter, LinkedIn, Instagram, Snapchat, and YouTube, sharing information and creating conversation. Since technology is continually developing, plan providers need to stay current with changes in the social media sites.  
  3. Plan Design Incentives Plan sponsors can design retirement plans and other benefit programs that influence participant behaviors. With the recent offering of student debt programs, plan sponsors are incenting participants to pay down their debt by making special contributions to their 401(k) plan or making a direct payment toward the employee’s student loan.  
  4. Creative Enrollment Offers  Many companies have health and welfare plans that encourage employees to utilize biometric screenings and other health related programs. Creatively designing a program to reward non-savers to enroll in the 401(k) plan may reduce some of the financial stress that they are experiencing.
  5. Socially Conscious Investment Options Another trend that Millennials are engaged in is environmental, social and governance investing. This may challenge plan sponsors to seek new investment alternatives that address their social concerns.     

“Millennials will drive this trend moving forward. As early as 2025, 75% of the workplace could be made up of Millennials, and they are very plugged into this topic.”2 Socially responsible investment options in a plan may encourage greater participation. 

As Millennials and the upcoming Gen Z population now comprise most of the workforce, communications may become an interesting challenge but a significant opportunity to impact behavior.  

If you have questions about increasing employee engagement in your benefit programs, please reach out to us for assistance. 

(1) The Allianz Generations Ahead Study was conducted by Larson Research + Strategy via lone survey in May 2017 with 3,006 U.S. adults ages 20 – 70 with a minimum household income of $30K and was commissioned by Allianz Life.

(2) Plan Sponsor National Conference 2019 panel discussion “DC Investment Ideas, ESG and CITs”.

Unexpected 401(k) Plan Costs – Get What You Pay for

Employer 401(k) fees

Maintaining a 401(k) plan can be an expensive proposition:  fees for recordkeeping, administration, and related services can run into the millions of dollars per year. Consequently, in-house staff have two overarching goals:

  • To obtain the contracted-for services at the agreed upon price, and
  • To mitigate the risk of unexpected costs and errors.

Benefits teams correctly believe and expect the provider will deliver agreed upon services as outlined in the scope of services and contract and provide accurate billing, thereby mitigating the risk of unexpected costs.

Unfortunately, based on Curcio Webb’s experience, these assumptions are not often actualized.  Many providers are faced with changing ownership structures, which places pressure on the providers to deliver growth and profitability, which can adversely affect their level of service. In addition, the change in ownership structure often impact employee morale, engagement and higher than anticipated employee turnover.

These dynamics result in our clients experiencing a higher than usual error rate, which adversely affects the benefits team, employee engagement and the total cost of ownership.

401(k) Plan Operational Failures

What we have observed is what the IRS refers to as “operational failures,” namely, failures to operate the plan consistent with plan documentation. In these situations, the employer is not getting the services promised under the contract and this can lead to considerable unexpected costs. For example, if a 401(k) plan states that all employees are eligible, but some employees are not offered enrollment, this is an operational failure and correcting the failure requires make-up contributions, not from the employees’ pay but from corporate funds (additional compensation).

Operational compliance is a pervasive challenge for employers and while the IRS has voluntary compliance programs, IRS-approved corrections can be expensive, and penalties must be paid.

Ensuring that you are getting what you pay for and reducing the risk of unexpected costs requires a proactive approach and this bulletin provides a general roadmap in relation to three of the most common operational failures.

1. Failure to Follow the Plan Definition of Compensation.

Retirement plans have specific definitions of the compensation used when calculating contributions (“eligible compensation”) and these definitions must be applied accurately and consistently across all participants every pay period. The complexity of these definitions combined with the myriad of wage types typically used by employers and system changes make this a vulnerability for many employers.

Failure to correctly determine eligible compensation often results in contributions that are smaller or larger than they should be using the correct eligible compensation. Either way, this failure often results in unexpected out-of-pocket costs (make-up contributions with earnings paid from corporate assets) and/or over-spending on employer contributions (that might not be recoverable) to say nothing of professional fees, staff time, and erosion of trust that the plan is operated properly for the participants’ best interests.

Employer Take-Aways:

  • Periodically perform self-audits.
  • This self-audit should also be done after any significant change to payroll systems, merger of payrolls, plans or businesses.
  • Before rolling out a new compensation or benefit program, determine whether the compensation is included/excluded from eligible compensation. Adjust and test payroll systems to ensure correct treatment.

2. Failure to include eligible employees or exclude ineligible employees.

Plans define which employees are and are not eligible for plan participation.   Closely related to this are age and service requirements that may apply in addition to whether the person could become eligible and plan entry rules that say when an employee who is eligible can enroll and begin contributing.

Failing to apply eligibility rules correctly can result in employees not being offered enrollment – at all or at the correct time – requiring make-up contributions with earnings (and consider the effect of this in plans with auto-enrollment and auto-escalation) and making sure data is corrected to ensure correct service and vesting.  This failure can also result in employees who should not be offered enrollment, being enrolled and receiving employer contributions they really were not entitled to, something that can be surprisingly complicated and disproportionately expensive to correct.

Employer Take-Aways:

  • Periodically perform a self-audit.
  • Self-audit these procedures after significant system, vendor and/or organizational changes.
  • Consider simplification of complex eligibility rules.

3. 401(k) plan loans that do not comply with IRS regulations.

IRS regulations impose numerous requirements for loans made by 401(k) plans to participants for example, limiting the amount that may be borrowed and limiting the term of the loan.  Further, employers can customize loan provisions, for example, allowing multiple loans and suspending repayment during unpaid leaves of absence.

Because of these complexities, plan loans are a common source of operational failures and because a non-compliant plan loan is treated as a taxable distribution, correcting these errors can be particularly painstaking, disproportionately expensive and create employee relations issues.

Employer Take-Aways:

  • Periodically perform a self-audit.
  • Consider simplifying complex plan loan provisions.

Self-Audit of 401(k) Plans

Even diligent employers can experience operational failures in their 401(k) plans. The best prevention is to self-audit on regular intervals and whenever significant changes are made that impact the plan. Curcio Webb offers benefit administration compliance reviews to help you ensure you get what you pay for and avoid unexpected costs.

Curcio Webb would welcome the opportunity to provide a one-hour call to discuss the issues described above, or any other issues you might have regarding governance and risk related to the administration of your employee benefits plans.

DOL Audit of Defined Benefit Plans

When your number is up and the DOL comes knocking, will you be in the minority of DB plan sponsors with satisfactory responses to their inquiries, or might you be subject to a long and arduous audit process? 

While the initial focus of these audits is often Required Minimum Distributions (RMDs), these audits can delve into other areas, such as:

  • Normal Retirement Dates (NRD)
  • VT Benefit Notifications
  • Participant’s Earliest Retirement Date (ERD) for spouse benefits

Over the last couple years, the DOL has been focusing audit efforts on missing participants (and beneficiaries and QDRO alternate payees!) in defined benefit pension plans.  And since they are finding most plans to be out of compliance in this area, this activity shows no signs of letting up.  Indeed, the opposite is true.

Be prepared before the DOL comes knocking

We put together a two-page document of recommendations.

OCIO Searches – Trends in 3(38) Fiduciary Services

Curcio Webb has over a decade of experience assisting plan sponsors with 3(38) provider searches, which are commonly referred to as Outsourced Chief Investment Officer searches.

Phil Edwards and Uma Kolluri were recently interviewed for an article in PlanSponsor where they shared some of the market trends they see in the 3(38) fiduciary management marketplace. In this article, they were quoted as saying:

“Today the demand for 3(38) search, support and monitoring has moved up market into plans with billions of dollars in assets” as plan sponsors have a desire to focus more attention on their business they note. Interest from mid-sized and smaller plan sponsors remains strong as well. “The emphasis from many of the mid-sized and smaller plan sponsors is pursuing cost savings. These clients have an understanding that working with an outsourced chief investment officer [OCIO], as we tend to describe the 3(38) relationship, can help them purchase investments with far greater economies of scale.”

Read the full Matchmaker for 3(38) Fiduciary Services Talks Market Trends article.

 Should you hire an OCIO?

Read the OCIO selection case study by clicking the image below.

Outsourced CIO selection

Defined Contribution Plan Governance

Governance

Documenting your investment committee decisions isn’t exactly exciting – but it is necessary if you want  to avoid problems down the road. Phil Edwards of Curcio Webb shares why it’s so important for investment committees for defined contribution plans to spend time documenting their decisions.

This video is part of a series on Defined Contribution Plans.

For more on Managing Defined Contribution Plans, please see these related videos:

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Focus on the Outcomes of Your Defined Contribution Plan

Is your Investment Committee Focused on Outcomes?

Most are not. Most investment committees spend 80% of their time managing investments. We believe you should think and plan more holistically to achieve the goals that are best for your company – and for plan participants.

This video is the first in our series, Managing Defined Contribution Plans. See related videos:

If after watching this video, you’d like to talk, schedule a 30-minute call with us!

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