Executive Summaries for 2021
1st Quarter 2021
As this article goes to press, the COVID-19 pandemic continues to evolve, and when we will witness a true turning point—with the production and widespread distribution of a vaccine—is still unknown. But what is known is that the health and economic impact of the pandemic has already meant considerable change for the employer-sponsored benefits system, and it holds the possibility of even more significant social and public policy changes. As a society, we will live for years in the shadow of this devastating event. We can take some solace from the knowledge that for all the risk it poses, it also opens the door to changes that will strengthen employer-sponsored benefits. This article discusses such changes in health benefits (behavioral health, telemedicine and health care costs in general and related to COVD-19), retirement benefits (defined benefit and defined contribution plan interactions, other benefit priorities) and more fundamental changes (social determinants of health, Medicare for all, caregiver benefits, and women’s financial security). In creating a reckoning about the state of financial security, the pandemic also offers opportunities and, hopefully, a corresponding commitment to address them.
Employers play an invaluable societal role in supporting workers’ achievement of long-term financial security in ways that transcend the offering of a job and paycheck. Their role has become even more crucial, albeit precarious, amid the COVID-19 pandemic, which has undermined the profitability of businesses and is causing employers to confront difficult decisions. Based on its survey findings, the nonprofit Transamerica Center for Retirement Studies® (TCRS) has identified seven win-win solutions that can help employers improve productivity and optimize workforce management, while supporting their employees’ health and financial well-being: (1) be an age-friendly employer; (2) offer alternative working arrangements; (3) promote wellness in the workplace and home; (4) provide a retirement savings plan, financial education and planning resources; (5) provide other health and welfare benefits that can help improve financial security; (6) facilitate flexible transitions to retirement; and (7) design programs and benefits with affordability and portability in mind. Working with their human resource and benefits advisors, employers can consider these options now and in the future, when the broader economic picture improves.
COVID-19 created major new health risks for Americans at all ages and, at the same time, had a major impact on the economy and daily life, exacerbating a wide variety of retirement risks. The retirement system faced major challenges before the pandemic, but the pandemic and its consequences may change the way people look at retirement issues. This article reviews how COVID-19 changed the economic environment, the work environment and the situation for retirees. It provides insights into employer responses to date and a discussion about what they might do in the future. Organizations that make major changes in employment strategies will also need to revisit their retirement benefits strategies. This article further provides a discussion of retirement risks based on recent Society of Actuaries (SOA) research and includes COVID-19 impacts on the risks. It brings together consideration of retirement risks, the environment before COVID-19, changes in that environment and possible future directions for retirement benefits. In 2020, SOA released a new version of its “Post-Retirement Risk Chart” and several reports on retirement risk and COVID-19. These reports were also used to inform this article.
The COVID-19 outbreak exposed deep fissures in our public health and economic systems, pervasive racial and social inequality, and our collective susceptibility to financial disruption. This article explains how COVID-19 became the tipping point toward a paradigm shift caused by the impact the lack of paid leave had on individuals, society and the workplace. The author describes the effect of the lack of paid leave has on workers’ overall wellness, the dangers of doing nothing and key considerations moving forward. Facing these challenges will require bold thinking and require public-private partnerships to create innovative and equitable solutions that enable people to maintain a dignified standard of living regardless of economic volatility. It is not just the right thing to do ethically; there is also a compelling business case for it. Designing an end-to-end system, rather than simply constructing a patchwork of systems, will help us fulfill the vision of making financial security an achievable goal for all people in the United States.
Former UCLA Basketball coach John Wooden said, “Adversity often produces an unexpected opportunity.” Although much devastation has come as a result of the COVID-19 crisis, there has also been much good. Corporate America has gained more knowledge, has become more empathetic and accommodating, and has shored up its processes and programs in the likely event this type of devastation should reoccur. This article addresses what we have learned from the pandemic and provides eight lessons on how we anticipate the new normal. It also describes how the business of work is different and offers overall best practices for returning to work post-COVID-19.
As we focus on retirement planning, one approach is to also look beyond the financials and help employees consider all aspects of their life in retirement. This may seem like the “soft stuff,” but the soft stuff is hard, and it significantly shapes the hard stuff. This article discusses how going beyond the financials positions individuals for a full and well-planned retirement. Providing this approach will make existing financial wellness programs even more effective. It’s good for retirees, preretirees and younger workers. As it helps all employees, the employer benefits from increased work performance, thereby maximizing the return from financial wellness programs
2nd Quarter 2021
The perception of health savings accounts (HSAs) has evolved for some benefits professionals. Once considered to have only limited value for a minority of workers, more now view HSAs as a “health and wealth” rewards strategy. However, this evolution has not prompted broad coverage, widespread enrollment or a change in savings habits. Impediments to enrollment remain. Few plan sponsors have embraced 401(k) precedents and deployed automatic features. The author explains how HSAs are capable of quadruple duty and more—that HSAs offer superior utility that plan sponsors and employees cannot afford to forgo.
Despite the positive benefits that accrued to plan participants, the Pension Protection Act also had an unintended consequence: a surge in small 401(k) accounts. The lack of seamless plan-to-plan portability makes roll-ins to new employer plans time-consuming and leads to voluntary and automatic cashouts for small accounts. A solution is adopting auto-portability, a bipartisan remedy. With auto-portability, plan sponsors, recordkeepers and providers can build a portability infrastructure within the U.S. retirement system that helps them mitigate their future fiduciary liability while simulta-neously helping participants retain their hard-earned retirement savings and increase their retirement income.
In today’s stressed economy, employers with defined benefit (DB) pension plans have a number of ways to pursue derisking their plans, but not all of these methods are created equal. Terminations, freezes and lumpsum payouts are common. Employers don’t have to “throw the baby out with the bathwater.” Pension plans provide critically important human resources (HR) tools in terms of workforce management. Because so many employers have moved to defined contribution (DC) plans, a company that offers a pension could have a crucial differentiator in recruitment and retention. And in times of contraction, early retirement windows are helpful, as is the ability to finance them over time. There are innovative de-risking strategies that enable employers to maintain what is most useful about DB pension plans while also providing financial stability. The issue is essentially one of finding the right level of risk shar-ing between an employer and an employee in a “new normal” that seems to be ushering in once-in-a-lifetime economic crises one after the other. This article explores three tactics that Fortune 500 companies may consider for analyzing risk, derisking pensions and increasing financial stability.
Diminished capacity affects the ability to communicate and use technology, which are important factors in being able to interact with financial institutions and many employee benefit plans. Diminished capacity also impacts the ability to interact with family, friends, the medical community and other businesses. The Department of Labor ERISA Advisory Council chose “Considerations for Recognizing and Addressing Participants With Diminished Capacity” as one of its topics for 2020. This article, which reviews the research and suggests strategies that employers can use to respond to issues re-lated to diminished capacity, is largely based on the author’s testimony to the advisory council in September 2020. It reflects her personal views and not those of any organization.
In response to gaps in employer offerings, policy makers have moved to encourage the use of various employer pooled arrangements that are designed to reduce the cost and administrative burden of plan sponsorship. One of these arrangements is multiple employer plans (MEPs) established by associations of employers (association MEPs). This article describes some of the key features of association MEPs as well as several items to note in considering the vendor team. The author demonstrates that although the use of an association MEP enables the retention of certain services that would be prohibitively expensive for each participating employer, the arrangement can be seen as a two-edged sword. Employers will be drawn to an association MEP for the combination of lower costs and additional services. However, once in the MEP, the plan fiduciaries are charged with exercising their fiduciary responsibilities in the context of being in a MEP—and this means justifying the reasonableness of vendor fees in that context. Fiduciaries cannot simply rest on the savings recognized in the transition from single employer plans to a MEP. Rather, as stated in ERISA, they must exercise the prudence appropriate for "an enterprise of a like charac-ter and with like aims."
When guidance was issued in 2016 regarding midyear changes to ADP/ACP safe harbor plans, no one had an inkling that four years later hundreds of employers would implement midyear reductions or suspensions of safe harbor contributions to their actual deferral percentage (ADP) and/or actual contribution percentage (ACP) safe harbor plans due to the coronavirus pandemic of 2020. This article reviews the available guidance on midyear changes to ADP/ACP safe harbor plans.
Cash balance plans, variable annuity plans and variable accrual plans have undergone benefit plan design changes due to trends in recent years. This article discusses the advantages, disadvantages and valuation concerns for each different plan design. The author uses financial modeling to see how the designs work and how plans mitigate the risk of underfunding.
Full Text Articles