Client Service November 8, 2019

Ways to Combat Leakage

The Savings Preservation Working Group says that at least 33% and as many as 47% of plan participants withdraw part or all of their retirement savings when switching jobs.

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While most retirement plan advisers and sponsors focus on ways to inspire participants to save more, on the flip side, leakage from retirement plans is a serious issue they also need to address.

According to a report from the Savings Preservation Working Group, “Cashing Out: The Systemic Impact of Withdrawing Savings Before Retirement,” which analyzed a variety of recent research and data, cash-outs from plans when people switch jobs are the most prolific form of leakage. This surpasses hardship withdrawals by eight-times and loan defaults by 130-times.

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The Working Group found that at least 33% and as many as 47% of plan participants withdraw part or all of their retirement savings when switching jobs. This leakage runs between $60 billion and $105 billion a year.

The first thing advisers and sponsors need to do to help prevent leakage is to educate participants about the downsides of cashing out, taking out a loan that they might not repay in full, or resorting to a hardship withdrawal, says Mike Lynch, vice president, strategic markets, at Hartford Funds.

Participants need to know that cashing out of their retirement plan could jeopardize their retirement security, says Ric Edelman, co-founder and chairman of financial education and client experience at Edelman Financial Services. Participants also need to know they will have to pay ordinary taxes on the money and, if they are under the age of 59 ½, the IRS will charge them a 10% penalty, Edelman says.

“From a retirement planning perspective, this is the worst choice that they can make,” he says.

Furthermore, if a participant cashes out and immediately spends all or most of the money, they may not have adequate cash on hand to pay the upcoming taxes, warns Larry Steinberg, chief investment officer at Financial Architects, Inc.

When a participant cashes out of a plan, investment firms are required to withhold 20% of their balance in order to cover taxes, but this is just an estimate, Steinberg says. “In California, you can owe as much as 53% of a distribution, because that is the marginal federal and state tax rate for someone in the top tax bracket,” he says.

To prevent participants from taking out loans or hardship withdrawals or cashing out, employers can consider setting up automatic emergency savings accounts for them, says Mike Webb, vice president at Cammack Retirement. While these are offered by only a handful of employers, Webb is hopeful they will gain traction.

Another thing employers can do to get in front of leakage is to offer additional benefits that employees can tap into, says Tom Foster, national spokesperson for MassMutual’s workplace solutions unit. “This could include health savings accounts, 529 college savings plans, student loan programs, critical illness insurance, accident insurance, life insurance, and access to low-cost loans,” Foster says. “Sponsors can offer many alternatives, and it doesn’t cost them additional money.”

Advisers can play a critical role in this effort by “explaining to sponsors that it would be a disadvantage to them if they don’t have the right benefits to attract and retain employees,” he says.

Another thing that advisers and sponsors can do is to “offer financial wellness programs and seminars and tutorials on the basics of budgeting and setting up an emergency fund,” Foster says. And if the sponsor has decided to offer additional benefits, this is an opportunity for advisers to educate them about these various options and to help participants prioritize their dollars into these benefits, he says.

“And if the employer doesn’t offer these additional benefits, advisers can work with employees to see what financial resources they might have other than their 401(k)—be it other savings, insurance or help from relatives,” Foster says.

Foster reminds advisers and sponsors that providers have many educational tools and calculators that they can use in their efforts to combat leakage.

Deals & People November 8, 2019

Retirement Industry People Moves

MassMutual hires managing directors for DC retirement plans; Cohen & Steers appoints Sony Music VP to board of directors; FTJ Retirement Advisors partners with retirement planning marketplace company; and more.

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Art by Subin Yang

MassMutual Hires Managing Directors for DC Retirement Plans 

Several managing directors have been appointed by Massachusetts Mutual Life Insurance Company (MassMutual). Managing directors support financial professionals who sell 401(k)s and other DC retirement plans in the corporate, government and nonprofit marketplaces.

“The appointment of new wholesalers underscores MassMutual’s continuing commitment to grow our share of the retirement plans marketplace,” says Bob Carroll, head of distribution for workplace solutions. “Our network of managing directors provides local support for financial professionals across the country.”

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Greg Hodges serves the institutional market and joins the team covering California, Hawaii and Alaska. He partners with managing directors in the emerging market. Prior to joining MassMutual, Hodges held positions as regional vice president with Newport Group, Manning & Napier, Prudential and Empower. He is a graduate of George Fox University and holds FINRA series 7, 63, 66 and life insurance licenses.

Mick Simmons covers Utah, Southeast Idaho and Western Montana, and partners with Scott Adams, managing director of institutional markets. Prior to joining MassMutual, Simmons was a vice president at Transamerica and Goldman Sachs & Co.  He holds a bachelor’s degree from Utah State University and a master’s from the University of Utah. He has FINRA series 7, 26 and 63 licenses.

Daniel Fowler covers Northern Los Angeles and partners with Hodges. Prior to joining MassMutual, Fowler was a managing director of sales for The Ryding Company, and also held wholesaling positions at Voya and AIG SunAmerica. He is a graduate of Vanguard University and holds FINRA Series 7, 63 and life insurance licenses.

Kari Lusby covers the San Francisco Bay area and partners with Hodges along with Fowler. Prior to joining MassMutual, Lusby was a regional vice president for Nationwide, and was also a financial consultant focused on retirement plans. She is a graduate of Georgia Southern University, as well as the Defense Language Institute.  She holds FINRA Series 7, 66 and life insurance licenses.

Tony Daniel covers Nebraska, Iowa, Kansas and Western Missouri and partners with Brad Harrison, managing director of institutional markets. Prior to joining MassMutual, Daniel was a regional vice president for Nationwide and was also a financial adviser. He is a graduate of Creighton University and holds FINRA series 6, 7, 63 and life insurance licenses.

Steven Spurling covers Northern Illinois. Prior to joining MassMutual, Spurling was president of The Spurling Group and also held positions as regional vice president for Columbia Threadneedle Investments and Principal Financial Group. He is a graduate of Illinois State University and holds FINRA series 6, 7, 63, 66 and life insurance licenses, as well as the C(k)P designation.

Cohen & Steers Appoints Sony Music VP to Board of Directors

Cohen & Steers Inc. has appointed Dasha Smith to its board of directors and as a member of the board’s audit committee, compensation committee, and nominating and corporate governance committee. 

Smith’s appointment expands the board of directors to nine members and increases the number of independent directors to six. She is the executive vice president and global chief human resources officer for Sony Music Entertainment. In this role, Smith is a member of the global leadership team, responsible for global human resources and corporate responsibility strategies and operations. She plays a key role in developing Sony Music’s culture and future-forward strategies.  

Prior to joining Sony Music, Smith served as the managing director in the office of the chairman and as global chief human resources officer for GCM Grosvenor, a global alternative investment firm. At GCM Grosvenor, Smith was a member of the executive management committee, where she managed the human resources, marketing, investor relations, administration, facilities and operations, diversity and corporate and social responsibility functions.

FTJ Retirement Advisors Partners with Retirement Planning Marketplace Company

Brian Holland, director of Forrest T. Jones (FTJ) Retirement Advisors in Kansas City, has announced his firm’s new affiliation with PlanMember Securities Corporation. As a new PlanMember Financial Center, FTJ Retirement Advisors is expected to expand retirement and investment planning and financial education opportunities for investors, including educators and employees of nonprofit organizations and associations in Kansas City and other cities in Missouri.

PlanMember specializes in the 403(b), 457(b) and 401(k) marketplace, while Forrest T. Jones is a family-owned enterprise providing insurance and financial planning programs.

“Affiliating with PlanMember as a financial center is really a next step toward providing educators, non-profit organizations, associations, individuals and families with complete holistic retirement planning services,” says Holland. “We strive to provide education and guidance to all our clients, enabling them to make informed financial planning decisions that are right for their own unique situations.”  

Edelman Financial Engines Appoints Workplace Business Leader

Edelman Financial Engines has appointed Kelly O’Donnell to lead its workplace business. In this role, O’Donnell will report directly to the company’s president and chief executive officer, Larry Raffone. She is based in Boston. 

Previously, O’Donnell served as chief administrative officer and chief risk officer, overseeing the company’s strategic plan and expansion of capabilities through mergers and acquisitions.

“Kelly’s in-depth knowledge of our workplace business and longstanding industry relationships will play a key role in advancing our strategy and I am excited to have her lead our workplace business into its next phase of growth,” says Raffone. “As head of Workplace, Kelly will take ownership of our workplace strategy, marketing and distribution initiatives to ensure millions of plan participants have access to comprehensive advisory and financial planning services they all deserve.”

O’Donnell is also the founder and executive sponsor of Edelman Financial Engines’ Women in Leadership program. In addition, O’Donnell’s rich experience has made her a trusted voice for testifying on industry issues on Capitol Hill, presenting at financial technology conferences on the future of innovation in the industry, and as a trusted resource for the media and analyst community on the topic of women and investing. 

Newton Promotes Investment Director

Newton Investment Management has appointed Seyi Bucknor as head of North America.

Bucknor will lead the distribution and client service functions in the region. Prior to this promotion, he served as a commercial investment director for Newton. He joined the firm in 2018 from BNY Mellon Investment Management, where he was a co-head of the manager research group.

Additionally, Bucknor had been a managing director in the investment solutions group at GE Asset Management and a director in investment research at Rogerscasey, before joining BNY Mellon in 2012.

He holds a bachelor’s degree from Cornell University and a master’s from Columbia University.

Incapital LLC Brings in CMBS Managing Director

William White has joined Incapital LLC as managing director, commercial mortgage-backed securities (CMBS), reporting to the firm’s co-heads of fixed income, George Holstead and Laura Elliot.

White will be based in Boca Raton and will work closely with Holstead and Elliot to expand Incapital’s CMBS solutions and the firm’s broader fixed-income strategy.

“With an impressive track record spanning over 20 years in the CMBS market, we are pleased to welcome Bill to our growing team,” says Holstead. “He will play an instrumental role in expanding our CMBS capabilities, and we look forward to his contributions as we continue to expand our group and develop new solutions that meet the evolving needs of our clients.”

White joins Incapital from Raymond James & Associates, where for 10 years he served as a managing director and head of CMBS trading, responsible for overseeing the firm’s efforts in the CMBS market, as well as their commercial real estate (CRE) and collateralized debt obligation (CDO) businesses. Prior to Raymond James, White worked as a director of CMBS and CRE CLO trading at Wachovia Capital Markets and as an associate specializing in residential mortgage securitization at Bank of America Securities.

He earned a master’s in business administration and a bachelor’s degree from the University of Pittsburgh; he also holds FINRA security licenses Series 7 and 63.

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