Client Service December 8, 2015

Advice to Slow Leakage Critical Point in Fiduciary Fight

“A phone consultation, an illustration of lost future value, or an example of net take-home after taxes can effectively dissuade participants from accessing retirement funds prematurely,” according to a new paper from Cerulli Associates.
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Research from the December 2015 edition of The Cerulli Edge underscores the power of an adviser to slow loans and leakage from defined contribution (DC) retirement plans.

The report cites survey data showing, regardless of income level and career stage, plan participants across the employment spectrum feel unsure about what to do with retirement accounts from former employers. There is significant temptation to cash out retirement accounts when changing jobs, Cerulli notes, made worse by a lack of appreciation for the sharp fees and taxes associated with early withdrawals.

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“While presenting investment recommendations may become difficult in a highly regulated environment, education about the importance of avoiding premature withdrawals and other planning-oriented issues will be critical,” Cerulli says.

The research highlights the fact that, although the DC retirement planning industry has had success with auto-enrollment programs, there is still very little automaticity on the back end of the system—leaving participants to make their own manual choices at a financial planning stage that in many respects is more complicated than accumulation. “Participants, sometimes under minimal guidance, make important decisions, such as the election to roll over or take a cash distribution, that can affect their long-term retirement prospects,” the report suggests.  

“While representing only a small subset of the overall asset pool, plan-to-plan rollovers will trend upward as the Department of Labor continues to push the DC plan as the safest place for retirement balances,” Cerulli predicts. “Until more DC plans allow for partial drawdowns, in-plan retirement income will not be a large-scale possibility.”

NEXT: When advice matters most

Cerulli cites data from the Bureau of Labor Statistics showing workers today on average change jobs nine to 12 times during their adult working lifetime.

“Essentially, if participants were automatically enrolled at a robust 6% (not currently the norm), and escalated 1% annually, by the time they reach the minimum recommended deferral percentage of 10%, they switch jobs and start all over again,” Cerulli explains. “Compound this deferral problem with nine or 12 decisions as to whether to leave the account as is, roll it over, or take a cash distribution, and all of a sudden, numerous obstacles to saving start to present themselves.”

Cerulli concludes that all investors will face major decision points where misinformation can lead to poor decisionmaking, especially as it relates to loans or early withdrawals. It’s an area where skilled retirement specialist advisers have the opportunity to do a lot of good and protect the assets in the plans they serve.

“These often costly actions are also exceedingly easy, even for the most uninformed participants to make, because they are often handled online without so much as a probe as to the reason for the withdrawal,” Cerulli warns. “We recommends that recordkeepers and employers, important sources of advice for the average participant, take the leading roles and start to stretch their offerings, especially when it comes to early distributions.”

Cerulli further predicts, “until more DC plans allow for partial drawdowns, in-plan retirement income will not be a large-scale possibility.”

Information on how to obtain this and other Cerulli research reports is here.

Products December 8, 2015

Natixis Unveils Student Loan Repayment Benefit

Hoping to leverage the power of leading by example, Natixis has launched a new program to help its long-term employees pay off student debt. 
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Natixis Global Asset Management announced a new benefit to assist employees with the repayment of their student loan debt.

Explaining the new benefit approach, the company tells PLANADVISER it will contribute up to $10,000 to every full-time employee who has been at Natixis for at least five years and has outstanding Federal Stafford or Perkins Loans. The benefit will consist of one $5,000 cash payment to employees after five years of working at Natixis, followed by annual payments of $1,000 distributed over the next five years for a total of $10,000.

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Tracey Flaherty, senior vice president in charge of retirement strategies at Natixis, explains the decision to offer the benefit was born out of conversations with members of Natixis’ team, especially Millennials entering the workforce right out of college.

“Millennials are delaying important financial milestones because of the burden of student debt,” Flaherty says. “In addition, research conducted by the company indicates that although the best practice for retirement saving is to start young, student loan debt is keeping a significant number of young workers from taking that first step.”

Backing up the assertion, Flaherty cites the Natixis 2015 Retirement Plan Participant Study, which shows nearly one in four (23%) Americans and more than one-third (35%) of Millennials do not contribute to a company-sponsored retirement plan because they prioritize student loan debt payments.

NEXT: Leading by example 

Among that survey’s Millennial respondents, Flaherty notes student debt is the third most common factor for not participating, behind the perennial issues of “needing the money today” (54%) and “feeling the company match isn’t big enough” (43%). While the former issue is pretty hard to get around, one will often be surprised to find out just how much they’re able to cut back from their budget with a little conscious effort, Flaherty says. And the messaging of compound interest should make the employer match look a little more attractive.

“One of the most powerful messages is that, if a Millennial starts investing seriously at age 23 and stops at age 40, he will still have more money by age 65 than if he simply started saving at age 40,” Flaherty says. “Saving over the course of a career really can generate financial independence by retirement.”

John Hailer, president and CEO of Natixis Global Asset Management in the Americas and Asia, says the company has heard loud and clear from its younger employees about the toll student debt can take on other financial obligations, especially saving for retirement and purchasing other helpful supplementary workplace benefits. “Our extensive research on Americans’ financial health supports the need to provide student loan repayment as a benefit,” he adds.

Natixis explains its student loan repayment benefit will take effect on January 1, 2016, with initial eligibility “based on employees’ outstanding student loan balances.” The payments will be taxed at the supplemental bonus rate and cannot be combined with Natixis’ tuition reimbursement policy, the firm says.

Flaherty says Natixis looks forward to tracking the take-up rate of the new benefit program, which she explains as one more piece being added to the holistic financial wellness approach that has been adopted by corporate leadership. “This is being folded into our other supplementary benefits beyond the 401(k) and health plan,” she says, agreeing a secondary benefit of the program will be greater employee retention and more an even more powerful recruiting pitch.  

While this program is for the Natixis staff, Flaherty adds the firm is committed to bringing holistic financial wellness solutions to market and will certainly learn from the experience of delivering a student loan repayment benefit to its own staffers. 

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