PLANSPONSOR - October/November 2020 - 18

COVER STORY | TIME TO TAKE STOCK
1) Contribution Trends
Plan sponsors typically look first at the percentage of active participants
contributing to their account, says Jeanne Thompson,
Boston-based senior vice president, with Fidelity Workplace
Consulting. Then they look at data on the percentage of participants
who increased their contribution, decreased it or kept it the
same during the year, so they can see the trends, she says.
By this June 30, 9.8% of active participants in Fidelity's
client plans had decreased their contribution over the previous 12
months. Another 32% of active participants had increased their
contribution, and the remainder let it stay the same. By way of
comparison, Thompson says, in June 2009, amid that year's
economic downturn and market volatility, 14.9% of participants
had decreased their contribution during the previous year, and
only 11% had increased it. So contribution rates fared better this
time, and increased use of the automatic escalation design feature
played a big part, she says.
It is also important to look at the percentage of
participants still maximizing the employer match.
If there has been a decline, it is helpful to directly
reach out to participants no longer contributing
enough to get the full match, says Kelli Davis,
vice president of retirement plan consulting at
CSi Advisory Services in Indianapolis.
As a third-party administrator (TPA) as well
as a plan adviser, CSi has payroll data it can input
into software that computes personalized match data;
the advisory firm uses this to send an individualized email to
a participant no longer maximizing the match. " We can show
the participant, 'Right now, you contribute $45 per pay period to
your 401(k) account; if you up that to $52 per pay period, you'll
maximize the match, and this is what the difference will be in
the match money you [receive],' " Davis says, for an example.
It also helps to have a virtual, one-on-one meeting with a
participant who has decreased his contribution during the year,
says Patterson McKinlay, principal at Achieve Retirement in
Denver. " You have to understand the root cause of this anxiety
and concern. A lot of the feedback we hear from participants is, 'I
need to build up my financial reserves.' So we work with them on,
'Let's look at your budget and find some money for an emergency
fund. But can you at least continue contributing something to the
retirement plan?' " Many people have reduced their spending in
areas such as dining out and entertainment this year, he notes,
so they could use that money to keep contributing.
2) CARES Act Distributions and Loans
The Coronavirus Aid, Relief and Economic Security (CARES) Act
made it easier for 401(k) participants to take out money from their
account, if their employer added the loan and withdrawal features.
Among Fidelity clients, 96% allowed for the COVID-19
withdrawals, 9% permitted the loans, and 36% offered deferred
repayments on their existing loan program. By the end of the
18 PLANSPONSOR.COM October - November 2020
third quarter, 81,000 participants had taken a CARES Act loan,
" so that's less than half-a-percent of our book of business, "
Thompson says. " Unlike other kinds of loans outside a 401(k)
plan, the repayment has a direct impact to their paycheck. Now,
many people need their paycheck to live on, especially if their
hours have been cut. " That kept utilization low, she theorizes.
But more participants took coronavirus-related distributions
(CRDs), which allow but do not require repayment. By September
30, 1.2 million participants in Fidelity plans had taken a CARES
Act withdrawal. Participants' withdrawals averaged $10,500.
Some sponsor clients of Advanced Capital Group decided
not to offer the COVID-19 loan or distribution features, out of
concern for the impact on their employees' retirement readiness,
says Dan Schroeder, principal and director of retirement
plan consulting with the company, in Minneapolis. One client
adopted the COVID-19 provisions with trepidation and has been
disappointed by " the number of people who took out large
amounts such as $50,000, even though the employer
didn't lay off any employees, " he says.
For participants who took a large CARES
Act withdrawal, Schroeder says, it is important
to help them understand the effect this could
have on their long-term future. " If you've got
employees who've undermined their retirement
security, it's an issue worth talking about. There's
not much else you can do, other than try to communicate
to these people the consequences of their actions, "
he says. " Now, if they want to get back on track, they've either got
to pay back some of it or increase their deferrals. "
Five percent of participants in Alight Solutions' client plans
had taken a coronavirus distribution by September 30. Austin
says, among those participants, half took out the $100,000
maximum amount, or their full balance if it was less than that.
Asked how to help participants such as these get back on track, he
says, " Part of it is showing them in communications the impact
of that amount if you project it out to retirement age. Express it in
terms of showing the gravity. "
3) QDIA Downside and Upside Performance
With the market's decline and significant rebound this year, it
helps for plan fiduciaries to look at both the downside and upside
performance of the plan's qualified default investment alternative
(QDIA), relative to both the index and peer funds, Davis says. " We
always talk about 'stress testing' funds. Well, this has been a stress
test, " she says. " And next time there's a big downturn, the market
may not bounce back in four months-it may take longer. "
Schroeder has seen a significant variation in this year's
downside and upside performance of target-date funds (TDFs),
especially those dated near retirement, depending on their
equity allocation. " The disparity in the allocation at age 65
between fund families can be as low as 8% in equities, up to
58% in equities, " he says.
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