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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.