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Insight on Plan Design & Investment Strategy
Updated: 4 hours 30 min ago

Health Care Organizations Focused on Improving Retirement Plan Participant Savings

Mon, 2020-01-13 12:48

Top priorities over the next two years for sponsors of health care organization defined contribution (DC) plans are increasing employee savings/contribution levels (96% say this is very important or important), increasing plan participation (89%) and helping employees with holistic financial wellness (81%), according to the 2019 Voya health care report.

“Motivating employees to save adequately” is the top plan management challenge selected by 81% of the plan sponsors surveyed. “Perhaps one reason many health care organizations struggle with motivation is that they have yet to implement lessons learned from behavioral finance: techniques to overcome participant inertia and indecisiveness,” says Brodie Wood, national practice leader, health care, Voya Financial. “By changing the plan design and enrolling participants in the plan by default at a level that will bring them closer to retirement readiness, even those employees not motivated to save adequately will be on track to achieve retirement success.”

He adds, “Again, it is plan design changes—automatic enrollment at a high deferral rate, automatic deferral increases and stretch the match strategies—that can bring about progress beyond the incremental changes achieved with additional employee education and counseling.”

Wood notes that many health care organizations continue to measure plan success by the participation rate rather than by a retirement readiness score or average deferral rate. “Adopting automatic plan features makes ‘participation rate’ a moot point and leads organizations to adopt retirement readiness as the preferred gauge of success,” he says.

To make employees more retirement ready, some health care employers rely on on-site representatives of their service providers to do more—principally in the area of education. Nearly 60% say they would like to see more one-on-one and group education meetings. More than half (52%) say they would like to see on-site representatives do more to discuss topics beyond the retirement plan with participants.

Only 12% find plan service providers very effective at motivating employees to increase their contribution to an appropriate level, and another 12% find their plan service provider very effective at supporting participants with their overall financial well-being. Nearly six in 10 (59%) health care organizations depend on their plan advisers and consultants to meet with employees to provide retirement plan guidance or advice.

However, Voya finds DC plans in the health care sector are showing stats in line with those of DC plans in the corporate sector. On average, 67% of employees participate in their plan and contributions average 8% of pay.

The 2019 Voya health care report—Prescription for Retirement Plans in the Health Care Sector—presents findings and implications from a survey of 95 health care organizations. The survey was conducted during a three-week period in July 2019. Nearly two-thirds of all respondent health care organizations offer a 403(b) plan, nearly two-thirds offer a 457(b) plan, and nearly half (47%) offer both. Besides these plan types specific to tax-exempt organizations, 44% offer a 401(k) plan.

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Categories: Industry News

PBGC Issues Premium Filing Instructions for 2020 Plan Years

Mon, 2020-01-13 10:14

The Pension Benefit Guaranty Corporation (PBGC) has issued Comprehensive Premium Filing Instructions for 2020 Plan Years.

Changes to note for 2020 include:

  • Changes in premium rates:
    • Single-employer plans: The Flat-rate Premium is $83 per-participant, up from $80; the Variable-rate Premium is $45 per $1,000 of unfunded vested benefits capped at $561 times the number of participants, up from $43 per $1,000 of unfunded vested benefits capped at $541 times the number of participants.
    • Multiemployer plans: The Flat-rate Premium is $30 per-participant, up from $29.  Multiemployer plans do not pay Variable-rate Premiums.
  • Risk transfer activity: The agency has simplified the reporting requirements with respect to lump-sum windows and annuity purchases and reinstated the question about lump-sum windows for retirees. See item 18 of the “Description of Data Elements” section.

The agency revised its premium filing procedures in 2015 to require reporting of pension risk transfer actions.

The PBGC reminds defined benefit (DB) plan sponsors that electronic filing is mandatory for all plans.

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Categories: Industry News

DC Plans Moving to Become Decumulation Vehicles

Mon, 2020-01-13 09:54

The percentage of defined contribution (DC) plan sponsors with a policy for retaining the assets of terminated and retired participants in their plans has increased steadily since 2015, according to the Callan 2020 DC Trends Survey.

More than six in 10 (62.7%) had such a policy in 2019, up from 58.1% in 2018. The percentage that had a policy for retaining assets in the plan in 2015 was 43.5%. Specifically, 72.3% with a policy seek to retain retiree assets, and 61.7% seek to retain assets of terminated participants.

An Alight Solutions study last year found DC plan participants who have small balances when they terminate employment are more likely to cash out than those with higher balances. Alight recommends that plan sponsors educate participants about their retirement plan choices, particularly discouraging younger workers who leave for other jobs from cashing out.

Employees who keep their assets in their DC plans after terminating or retiring from employment benefit from lower fees and having balances available for retirement income. According to the Callan survey, many of the plans seeking to retain assets offer an institutional structure that is more cost effective than what is available in the retail market. For plan sponsors, if they retain terminated and retired participant assets, the size of the plan is higher and, thus, they have more bargaining power with respect to service providers’ fees.

The Alight study found DC plan participants who were age 60 or older when they retired were more likely to keep assets in the plan if it permitted installment payments. Plan sponsors can also help participants in retirement stay properly invested while decumulating their assets by offering an in-retirement investment tier.

According to the Callan 2020 DC Trends Survey, one-third (32.5%) of plan sponsors offered a drawdown solution or calculator in 2019, up from 10.8% in 2018. One-quarter (24.7%) offered managed accounts/income drawdown modeling services, compared to 17.6% in 2018.

Callan conducted its 13th annual Defined Contribution (DC) Trends Survey online in September and October of 2019. The survey incorporates responses from 114 DC plan sponsors, including both Callan clients and other organizations. The full survey report is here.

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Categories: Industry News

SURVEY SAYS: 2020 Financial New Year’s Resolutions

Mon, 2020-01-13 03:30

Last week, I asked NewsDash readers, which, if any, financial resolutions they made for 2020.

The most common financial resolution selected by responding readers was to spend less (31.2%). One-quarter each selected “save more for retirement” and “give more to charity.” Nearly 19% said one of their financial resolutions is to reduce or get out of debt.

Other selections were as follows:

  • Create a budget and stick to it – 6.2%;
  • Spend more/stop being so frugal – 6.2%;
  • Save for emergencies – 12.5%;
  • Invest more in the stock market – 12.5%;
  • Get better financially educated – 0%;
  • Stop financially supporting family members – 12.5%;
  • Establish my plan for retirement – 12.5%; and
  • Engage with a financial adviser – 6.2%.

One-quarter of responding readers selected “None of the above.”

Those readers who chose to leave comments revealed other non-financial resolutions they’ve made. One said, “I am always successful with my resolutions. I always resolve to not smoke. I’ve never been a smoker, so it is quite easy! :)” Another reader wished everyone good luck with their resolutions. Editor’s Choice goes to the reader who said: “None of the above are New Year’s resolutions for me. They’re just things I know I need to tackle if retirement is going to be as enjoyable as I hope it will be.”

A big thank you to everyone who participated in our survey!

Verbatim

More chocolate!

Every January I increase my 401(k) Contributions by 1%. So much less painful this way. Once I max out my contribution, it’s like getting a raise!

I just retired so my resolution is to figure out how to enjoy life now that I do not have to go to work every day!

My resolution is to track my spending as I am within 3-5 years of retirement.

Good luck to everyone!

Since I consistently overspend at the holidays, I have established a good old fashioned Christmas Club for myself in 2020.

Mortgage payoff is number one on my list for this year!

None of the above are New Year’s resolutions for me. They’re just things I know I need to tackle if retirement is going to be as enjoyable as I hope it will be.

I try to set a goal each month of the year to accomplish something I’ve been “meaning to get to”. I’m a procrastinator by trade and this helps me accomplish more and feel better about myself.

I’m not likely to meet my resolution of spending less unless I delete my Amazon app. I think they’re going to start leaving random packages for me with a note saying they knew I probably meant to order it…and they’d be right.

I am always successful with my resolutions. I always resolve to not smoke. I’ve never been a smoker, so it is quite easy!

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Categories: Industry News