HTLF Retirement Plan Services
Plan Sponsors Q&A

A: On March 10, the Department of Labor (DOL) published compliance assistance for 401(k) plan fiduciaries who are considering plan investments in cryptocurrencies. Published by the department’s Employee Benefits Security Administration (EBSA), Compliance Assistance Release No. 2022-01 cautions plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants. The DOL called it an effort to “protect the retirement savings of U.S. workers” and came one day after President Biden signed an Executive Order on Ensuring Responsible Development of Digital Assets. Part of the order instructs the Federal Reserve to explore the development of a U.S. Central Bank Digital Currency (CBDC).

A: Updated research released last March from the Investment Company Institute (ICI) details just how far fees and expense ratios have fallen over the past 25 years. For example, it found that equity mutual fund expense ratios averaged 0.47% in 2021, compared with 1.04% in 1996; bond mutual fund expense ratios averaged 0.84% in 1996 and fell to 0.39% in 2021. ICI’s report also shows that in 2021, the average expense ratio of actively managed equity mutual funds was 0.68%, down from 1.08% in 1996. Average index equity mutual fund expense ratios were 0.06%, compared with 0.27% in 1996.

A: The Employee Benefit Research Institute issue brief, “Field of Dreams? Measuring the Impact of Financial Wellbeing Initiatives on 401(k) Plan Utilization” summarizes the extent to which the attendance of financial wellness webinars affected 401(k) plan participant behaviors. According to the report, participants’ estimated increase in 401(k) contributions after attending any financial wellbeing webinar was between $649 and $988, depending on age and initial contribution level.

Use of a budgeting webinar was positively related to increased employee 401(k) contributions for all participants. And for younger and lower contributing workers who attended a budgeting webinar, average contributions went up $3,284. In addition, participants’ contribution levels increased after workers used nine of 10 of the webinars.

A: Selecting a higher default rate has the largest impact on employee savings rates for new employees, according to a new research paper, “The Impact of Employer Defaults and Match Rates on Retirement Savings,” published by the Social Science Research Network. The research found that when employees are defaulted in at a higher rate, fewer move away from the default savings rate, which results in higher and more equal savings rates among employees at all income levels. In addition, the researchers note that lower-income workers can benefit from remaining in the default plan investment by taking advantage of institutionally priced diversified funds. You can download the paper at: https://insights-north-america.aon.com/investment/aon-what-drives-fiduciary-liability-whitepaper.

A: The money must be moved into the plan’s forfeiture or suspense account, where it can be used to:

• Cover other employer contributions already payable by the plan
• Restore the accounts of rehired employees, subject to certain criteria
• Pay ERISA-approved plan expenses
• Make additional employer contributions for existing plan participants 

Regardless of which option a plan sponsor uses, ERISA specifies that any forfeited contributions be used for an appropriate purpose by the end of the plan year.

A: As you probably know, workers are becoming increasingly interested in financial wellness education that can help reduce financial stress and prepare them for economic uncertainty. In fact, a recent survey by Brightplan revealed that when employees ranked employer-sponsored benefits, “financial wellness” was consistently ranked higher than workplace standards like healthcare and vacation time — and was only surpassed by “salary.”

Here are two activities to consider before launching a financial wellness education program in the workplace:

Conduct an employee survey. Employees should be formally surveyed to get a sense of what they need to feel supported as they continue to return to their pre-pandemic lives. Employees should be specifically asked in which areas of their personal finances they would most value employer support — such as building an emergency savings account or reducing debt.

Quantify your numbers to justify funding the program. Employers should consider quantifying how financial stress impacts their bottom line through factors such as lower productivity, absenteeism or medical costs. They may also want to consider identifying and targeting groups of employees who need the most help and focus initial financial wellness education efforts on them.

A: The fidelity bond required under the Employee Retirement Income Security Act of 1974 (ERISA) specifically insures a plan against losses due to fraud or dishonesty (e.g., theft) by persons who handle plan funds or property. Fiduciary liability insurance, on the other hand, is insurance plan fiduciaries purchase to protect themselves in the event they breach their fiduciary responsibilities with respect to the plan. Please note that courts can hold plan fiduciaries personally liable for losses incurred by a plan as a result of their fiduciary failures. Fiduciary liability insurance — while not required — could be an important financial safety net for plan fiduciaries. Although obtaining ERISA fiduciary insurance is considered prudent, it does not satisfy the fidelity bonding required by ERISA.

A: There are definitely some potential compliance violations that are more common among retirement plans. The Government Accountability Office recently published a 56-page report, (https://www.gao.gov/assets/gao-21-376.pdf), which provides updated information regarding the Employee Benefits Security Administration’s (EBSA’s) enforcement activities and how the agency is working to improve their investigative and enforcement processes.

As far as retirement plans go, the most common Employee Retirement Income Security Act of 1974 (ERISA) violation categories found in closed EBSA investigations through 2020 included: 

• Fiduciary imprudence (869 cases)
• Exclusive purpose (793 cases)
• Fiduciary self-dealing (543 cases)
• Prohibited transactions with a party in interest (457 cases)
• Failure to follow plan documents (344 cases)
• Improper benefit to employer (235 cases)
• Duty of disclosure: plan descriptions and summary plan descriptions (183 cases)
• Bonding (159 cases).

Your plan advisor is a great resource to help you better understand what these violations encompass and how best to avoid them.

A: It is somewhat of a growing trend and understandable if it catches many plan sponsors by surprise. Consider the following:

• According to a 2020 Employee Financial Wellness Survey by iGrad/Wellable, one-third of employees nearing retirement (ages 55–64) feel they don’t have enough saved to retire. 
• According to PwC’s 2020 Employee Financial Wellness Survey, delayed retirements can be expensive for employers, with increased annual costs of 1% to 1.5%. The survey noted that workers delaying retirement usually have more paid sick leave and vacation days, along with higher life, disability, and health insurance costs.

There are some basic things you can do as a plan sponsor to help buck the trend. For example, if you haven’t already, consider leveraging auto enrollment and auto escalation to encourage more effective saving strategies among employees. Also, make sure employees over the age of 50 are aware of “catch up” contributions — extra money they are allowed to save toward retirement each year ($6,500 is the amount for 2021, on top of the $19,500 maximum that all employees can contribute). You may also want to think about implementing some basic personal finance education, focusing on topics such as budgeting and debt management, to help improve the overall financial health of your employees.

A: First, be aware that you cannot offer investment advice to participants; doing so could violate your fiduciary duties. You can, however, offer general investment education. Your nervous participants are correct that 2020 has stimulated a lot of market volatility, and it may continue. But over the years, dollars that stay invested in the stock market have historically done better than dollars that come and go based upon the emotional response of the investor. One recent blog post commented on research from DALBAR, showing that investors’ desire to “do something” in turbulent times may have resulted in underperforming the S&P 500 by 4% per year between 2009 and 2019. Similar results came in the bond market, in which the average non-index investor lagged behind the Bloomberg-Barclays Aggregate Bond Index by 3% during the same time period. Sadly, those investors did not manage to beat the inflation rate during that decade. Learn more at https://blog.nationwidefinancial.com/markets-economy/capital-market-impact/emotional-investors-fall-behind-the-market/.¹

¹Past performance is no guarantee of future results. Individual results may vary; investors may not invest directly in an index.

A: Many employers share your concerns, because financial decisions today will undoubtedly have considerable impact on future retirements. Your desire to help is commendable. But it’s important that you know the difference between providing financial education and financial advice, and that your service provider does, too. Generally speaking, you or your service providers can provide investment education without fear of triggering a prohibited transaction — an event with serious plan qualification implications. Such education is general in nature. For example, you can explain asset allocation, diversification, and dollar-cost averaging. Investment advice is more specific to an individual. Avoid telling a participant what they “should” invest in, even if it’s something you personally do. For more information about this important topic, read the article, “The Difference Between Investment Education and Advice,” from Financial Finesse and published on 401khelpcenter.com: http://www.401khelpcenter.com/ff/ff_ed&advice.html#.YVypFZrMKM9.