PLANSPONSOR - June - July 2022 - 30

BEST PRACTICES | THIRD-PARTY PROVIDERS
third-party providers their recordkeepers work with, which
services they outsource, and how they manage that relationship,
says Chris Dall, vice president, senior product leader at
PNC Institutional Asset Management in Philadelphia.
" We recommend that our clients' recordkeepers are
reviewing third-party vendors on an annual basis for changes
that might have an impact on plan sponsors and their participants, "
Dall says.
Conducting due diligence on third-party providers should
be an important component of the recordkeeper search, he adds.
" While contracting a third-party to provide certain services is
not a negative on its own, we'd see it as a red flag if a recordkeeper
did not demonstrate strong control processes for the use
Recordkeepers
Meet an
Emergency
Savings Need
RETIREMENT plan sponsors have seen that
employees need to be prepared for shortterm
shocks to their finances in order
to have overall financial wellness and be
comfortable saving money for retirement.
" Eye on Systemic Change in the
Retirement Industry, " a study from
national nonprofit Commonwealth and
the Defined Contribution Institutional
Investment
Research Center,
Association's
reveals
that
of such third-party vendors. "
Among the factors to focus on while conducting due diligence
on a third party are whether it meets a need or solves a
problem for the plan sponsor, whether the vendor is financially
stable, and how it has performed for other plan sponsors, says
Stuart Robinson, CEO of ShareBuilder Advisors in Seattle. This
may require checking the vendor's references.
Plan sponsors should also inquire as to possible recourse
if the solution does not perform as advertised and ask whether
their adviser has other options that might be more suitable,
Robinson says. In addition, asking the following questions
when evaluating a third-party provider can help you determine
the potential fit:
Two recordkeepers emphasized that
the offering of emergency savings products
represents a shift in how recordkeepers
see their role in ensuring financial
security for their participants. One
said it took the firm " more than a year "
to be comfortable saying that emergency
savings should come before retirement
savings, but it realized building the
former was a way to ensure that the retirement
plan is not a " revolving door " for
loans and withdrawals, the report says.
Another interviewee noted that
the
retirement industry's focus is broadening
to consider more aspects of financial wellness,
including emergency savings.
The study also included interviews
Retirement
retirement
plan recordkeepers have joined in
addressing the emergency savings crisis. A
series of interviews with nine of the largest
recordkeepers in the U.S. found that eight
of them either offer or say they plan to offer
an emergency savings product.
According to the study report,
although recordkeepers' primary objective
is to support retirement savings, they
increasingly understand that other aspects
of a participant's financial life are crucial to
that person's ability to save for retirement.
Commonwealth says its previous research
supports this conclusion, finding that plan
participants who have not saved for emergencies
are twice as likely to tap their workplace
retirement savings account.
30 PLANSPONSOR.COM June - July 2022
with seven plan sponsors across a variety of
industries that collectively employ approximately
870,000 workers. A plan sponsor
with a majority of low- and moderateincome
workers said it wants to support
them in building emergency savings so
they can avoid taking out employer loans
or charging more to their credit cards.
Recordkeepers indicated that their
offering
primary
goal
in
emergency
savings solutions is to improve participants'
retirement readiness-over half
named that goal, with several calling it
their top goal. Still, to meet plan sponsor
client demands and to remain competitive
with recordkeepers that offer these products
were also listed as motivations.
While the recordkeepers said the
need to help employees build emergency
savings was obvious, their answers to
" What is emergency savings? " and " How
much should be saved? " varied.
The report recommends employees
start by saving for frequent expense shocks
to build short-term financial stability and
then for larger income shocks; this aligns
with other industry research. " With this
framing, plan participants who cannot
afford to save for many months of expenses
can focus on short-term savings, which
they can tap and rebuild without worrying
about dipping into a fund that's supposed
to be left untouched, " the report says.
There also was no consensus about
how emergency savings solutions should
be offered. Most of the recordkeepers
leaned toward out-of-plan solutions,
though several said they would offer both
in-plan and out-of-plan solutions to meet
participant and sponsor demand. Plan
sponsors were split on their preference for
in-plan vs. out-of-plan solutions.
The report
suggests
that whether
they are leveraging an existing product,
partnering with a third party or building
a new product in-house, recordkeepers
should keep a plan sponsor's key considerations
in mind. These were: the need to act
as a fiduciary for the employees; employee
engagement/utilization; cost implications;
and the importance of limiting the total
number of benefits vendors.
Of the seven sponsors interviewed,
more than half said they intend to offer
emergency savings in the near term,
either through their recordkeeper or
credit union. -Rebecca Moore
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PLANSPONSOR - June - July 2022

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