PLANSPONSOR - April/May 2020 - 49

WELLNESS STRATEGIES
if they prefer not to offer them. These
recordkeepers are also easing the process
by waiving fees associated with distributions
and loans.
While plan sponsors likely want
to provide liquidity, and stress-relief, to
participants in need, it is important not to
move too quickly, Dulko says.
Before rolling out such provisions,
sponsors should make sure their
advisers have a plan to explain them to
participants and can supply the education
and tools necessary for informed
decisions, says Francisco Negron, head
of client services at T. Rowe Price in
Owings Mills, Maryland.
" Some sponsors already have these
programs in place, but this is still an opportunity
to educate participants, " Dulko says.
" They probably shouldn't be giving advice,
but they should be providing education. "
Plan sponsors should also consider
the plan design, Dulko says. This would
include benefits available in the current
plan framework. And they should check
in with human resources (HR) or whoever
handles plan distributions to see whether
participants are requesting withdrawals
beyond what the existing plan offers.
" If participants aren't asking for
money out of the plan, adopting the new
provisions might not be necessary, " she
says. " If participants are asking about it,
how much are they looking to take out? Is
there another company benefit that might
cover their need, such as an employee
assistance program? "
The relief bill's CRD provisions are
meant to improve plan participants' financial
security through the near-term crisis,
creating a financial lifeline for families
where a job or a portion of their income has
been lost. Still, retirement experts worry
that the legislation helps at the expense of
those participants' long-term security.
Willis Towers Watson analyzed the
potential impact of CRD withdrawals on
retirement security, to gauge the effect of
the money not being repaid. Not surprisingly,
it found the impact grows, the more
the participant withdraws. A 25% decrease
in a participant account balance can equate
to an increase of six to 12 months of retirement-readiness
age, says Robyn Credico,
the firm's defined contribution consulting
leader for North America in Washington,
D.C. The research shows that loans and
withdrawals have no direct impact if they
are repaid, and that loans not repaid have
a similar impact to that of withdrawals,
Credico says.
The firm also evaluated what happens
to the retirement readiness of those
who make 401(k) withdrawals and then
decrease their ongoing participation rate
in order to repay the loan. In that case, a
1% decrease in deferral rate increases the
retirement readiness age by about a year.
" If you do offer withdrawals, there
needs to be, in a few months, communication
to encourage people to do what they
can to increase their deferral rates if they
decreased them, or to encourage them to
repay these amounts, " Credico says.
Present Other Options
One way plan sponsors can prevent plan
leakage is by ensuring that participants
not only know how taking a withdrawal
or loan could postpone their retirement
preparedness but that they have other
available options to get them through
difficult economic times, Negron says.
Some of those options may be in the
form of other workplace benefits, such
as emergency accounts or health savings
accounts (HSAs), Negron says. They
may also come via other components of
the coronavirus rescue package, such as
mortgage and student loan relief.
Communications should emphasize
the availability of such benefits and urge
participants to speak with an adviser, if
one is available through the plan, to help
them choose their best option-and avoid
potentially more costly solutions such as
payday loans or high-interest credit cards.
It is important for plan sponsors to
be in touch with plan advisers about how
they can help, Dulko says.
" The sponsor can talk in broad terms
about the law changes, but any time
it comes to financial concepts, they're
doing a disservice to themselves and the
participants by handling it on their own,
rather than enlisting their advisers, " says
Rosenbaum.
Negron says his firm has seen an
uptick in calls from participants inquiring
about withdrawals or loans, and it has
also hosted multiple webinars providing
broad education about market volatility
and managing risk in this environment.
" It's not financial advice, but it is practical
financial wellness principles, " he says.
" We can help sponsors by underscoring
these points to their participants. "
Participant Distributions
For participants who ultimately do opt to
take a loan or withdrawal from their workplace
plan account, the communication
should also include encouragement to
create a plan to repay the funds, Negron
says. Quickly repaying money taken
out of a 401(k) account can mitigate the
damage done from removing it, according
to research from Willis Towers Watson.
Plan sponsors can allow participants
who take loans to automate repayment,
plus let them keep repaying their loan
even after separating from the plan. That
trend has already been taking hold among
plan sponsors. More than half allow
participants to continue paying off loans
after leaving the company, up from just
16% in 2016, according to Callan.
Overall, about 10% of 401(k)
borrowers default on their loans, but that
rate shoots up to 86% when an employee
leaves a job with a loan outstanding, some
researchers have found.
" We will absolutely encourage people
to pay [loans] back, " says Doug Chittendon,
executive vice president and head of institutional
relationships at TIAA in Charlotte,
North Carolina. " But it's also about making
sure that when they do return to work, that
they increase their saving strategy to make
up for it. " -Beth Braverman
PLANSPONSOR.COM April - May 2020 49
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