PLANSPONSOR - March - April 2023 - 18

30TH ANNIVERSARY | PLAN DESIGN
Anne Ackerley, managing director,
head of BlackRock's retirement group,
in New York City.
As a result, plan sponsors have
become increasingly interested in
in-plan lifetime
income solutions,
which got a boost when 2019's Setting
Every Community Up for Retirement
Enhancement legislation introduced
additional safe harbor provisions for
in-plan annuities.
Nearly 40% of plan sponsors
surveyed in 2021 by PGIM cited the
evaluation of retirement income solutions
as one of their top three priorities
for the year ahead.
" The ability for the plan to offer
some type of in-plan guaranteed retirement
income product-that's going to
be huge, " says Taylor Hammons, head
of retirement plans at Kestra Financial
in Austin, Texas. " That goes to one of
the biggest questions participants have,
which is 'How much money should I
be pulling out on a monthly basis when
I'm in retirement?' "
Before the SECURE Act, employers
were aware of such a problem but
worried about their liability if they were
to introduce the income products.
" SECURE included a safe harbor
[for] annuities, " Ackerley says. " So,
if a plan sponsor picks an insurance
company to offer annuities and
THE EVOLUTION OF
CASH BALANCE PLANS
LONG VIEWED as less risky and easier to manage than traditional defined
contribution plans, cash balance plans have become more popular since the
Pension Protection Act of 2006. We spoke with Jeff Witt, a principal in Groom Law
Group in Washington, D.C., to learn more about how these plans have changed.
PLANSPONSOR: Why are cash balance plans becoming more popular
among employers that want to offer a defined benefit plan?
Jeff Witt: Younger employees weren't interested in, or didn't understand, the
traditional pension plan, so companies were looking for something that was the
best of both worlds from DC and DB. Instead of saying, " You're going to get
$1,000 a month for the rest of your life when you turn 65, " they can say, " You'd
have $500,000. " Then the employees' eyes light up; it bridges that communications
gap.
PS: IBM got sued in 2003 over allegations that its cash balance plan was
discriminatory based on age. While the 7th Circuit ruled in favor of the
company in 2006, the lawsuit had a big impact on such plans, right?
Witt: IBM was tied up in that litigation for years, and that really had a chilling
effect [on the plans]. The damage had been done, and then you had the financial
crisis in 2009, so nobody was looking to start a new defined benefit plan.
PS: So how are companies thinking about cash balance plans now?
Witt: That they're one step toward a pension risk transfer. Look at IBM. It went
from final-average pay to cash balance plans to completely frozen, and now
it's doing a pension risk transfer. It just took a $16 billion charge on an annuity
buyout. That's the lifecycle of the pension right there. The next stage is that when
it gets small enough, [IBM will] pull the plug.
something happens to that insurance company, as long as the
plan sponsor has gone through a reasonable process, there will
be a safe harbor for [that sponsor]. "
The Rise of the Roth
Other recent regulatory changes have affected plan design, as well.
Those include the elimination of the deferral suspension after a
hardship withdrawal and the continued pushback of the age at
which participants must begin required minimum distributions.
SECURE 2.0, enacted at the end of last year, eliminated
RMDs entirely for in-plan Roth accounts, making these a potentially
more attractive option for plan sponsors and their participants.
Sponsors have been able to offer participants a Roth option
since the passage of the PPA, and the number of sponsors that
allow Roth contributions increased from 11% in 2007 to 86% in
2021, according to data from Alight.
The numbers, however, reveal uneven adoption rates across
18 PLANSPONSOR.COM March - April 2023
industries. " We saw slower Roth adoption by plan sponsors in the
manufacturing industry, for example, because they feared it was
hard to understand, " Drayton says. " It's still hard to understand,
and there are so many assumptions that go into it with respect to
tax rates. We saw more adoption from physicians' practices and
companies like that. "
But Drayton says she will likely revisit the conversation with
clients that have resisted adding a Roth, particularly considering
SECURE 2.0 provisions that mandate that catch-up contributions
go into a Roth account.
" We have seen more interest in Roth contributions from
younger workers, but, with the advent of SECURE 2.0 and
changes forthcoming, it may create a moment where mid- and
late-career workers will also need to think about the Roth, "
Armstrong says. " And sponsors will need to think about whether
they're going to offer catch-up contributions in the Roth. "
-Beth Braverman
http://www.PLANSPONSOR.COM
PLANSPONSOR - March - April 2023

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