PLANSPONSOR - September 2017 - 20

Upfront
Plan Sponsors' Fear vs. Participants' Favor
Some plan sponsors
have not implemented
the following features
because they are
worried about
participant pushback.
... But the majority of
participants support
their employers'
implementation of
these features and
strategies.
Automatic
enrollment
Automatic
contribution escalation
Re-enrollment
75%
25%
20%
Plan sponsors that have not implemented
due to fear of participant pushback
Source: J.P. Morgan
74%
24%
Participants who are in favor of or
neutral toward the plan design
82%
Education
Against
Hardship
Withdrawals
UNDER federal regulations, some
defined contribution (DC) plans allow
participants to take a hardship withdrawal
to pay for immediate and heavy financial
needs. One example is a child's tuition
bills. According to Sue Unvarsky, chief
operating officer (COO) at Prudential
Financial, participants' demands for
withdrawals, and call center volume, tend
to peak around August, when the bills
reach parents' homes.
Jack Schumaker of Fidelity Investments
says his company's call centers see
similar patterns in the summer. In fact, in
the 12 months ended this June 30, about
2.2% of the firm's 15.1 million 401(k)
participants took a hardship withdrawal.
He adds that staff at Fidelity's call centers
undergo reinforcement training, plus
more staff are added-not only to deal
20 PLANSPONSOR.com September 2017
with the call volume, but also to ensure
participants are being guided through all
their choices and given information about
the implications of each.
For example, a hardship withdrawal
rarely comes at the sticker price. These
distributions are subject to income tax and
an additional 10% tax on the amount if
taken before the age of 59 1/2. Employees
are also barred from making elective
deferrals to the plan for at least six months
after the hardship distribution.
Unvarsky says a major downside to
taking a hardship withdrawal is that it
lessens a participant's ability to capitalize
on compounding of earnings. Moreover,
many participants find it difficult to
restore the amount they withdrew to their
account.
However, alternatives exist to taking
a hardship withdrawal for the purpose of
financing higher education.
While borrowing against a DC plan
account balance is not ideal, it may be preferable
to taking a hardship withdrawal.
" If you take a loan from your plan, you
immediately set yourself up for a repayment
schedule, " notes Unvarsky. " We also
encourage people to explore student loans
for their children and to be a co-signer. We
also try to make sure they have filed for
federal student aid. It may be more costeffective
to take a student loan as opposed
to tapping into retirement plans. "
Some participants, however, resort
to a hardship withdrawal after having
exhausted other resources, including plan
loans and emergency savings. For those
that do, the transaction can be as draining
emotionally as it is financially. For that
reason, Schumaker and Unvarsky say,
empathy governs many of the conversations
occurring in their call centers.
Research done by the International
Foundation of Employee Benefit Plans
suggests that education alone is not
enough. Information given to employees
needs to be actionable, and effort must
be expended to promote engagement
and raise awareness. This job requires a
human touch-not just high-tech tools.
" When a person enrolls in a [DC]
plan, we're going to educate him about
the plan as a long-term savings vehicle for
retirement and how to build other emergency
savings, " says Schumaker. If the
person is in a last resort situation, they
explain his options and the implications.
" The human interaction is a critical part
to that, " he says. -Javier Simon
http://www.PLANSPONSOR.com
PLANSPONSOR - September 2017

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