Experts Anticipate Upcoming Financial Education With a New Administration

President-elect Joe Biden’s win renews hope for financial wellness strategies in the future, and such changes could come with possible requirements for employers, employees and advisers.


With a new president coming into office in January, it’s time to focus on financial wellness education, industry experts say.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

 

President-elect Joe Biden has outlined plans for taxes, retirement planning and Social Security, but he has yet to announce a strategy for nationwide financial education in a year in which the pandemic has aggravated financial illiteracy, especially for lower income workers without proper resources, says Kenneth Van Leeuwen, managing director and founder of Van Leeuwen and Co.

 

“Internet connections and learning tools are second nature for many, but, for a lot of lower income people, these are the folks who are going to need more financial wellness education,” he notes. “Many don’t even have an internet connection where they can go and do an online tutorial for some type of incentive-based education.”

 

John Lowell, an Atlanta-based partner for October Three, says engaging workers in a remote work world is more difficult than it was in a traditional one. “If you’ve got a worksite that has 200 people and you want to do multiple financial education seminars, you can ask participants to sign up for any one of them,” he explains. “In a remote world, while many people have internet and Zoom access, in other businesses it’s really not an easy thing to do.”

 

In September, the Department of the Treasury released a report called the “U.S. National Strategy for Financial Literacy,” highlighting best practices for financial wellness education. But Van Leeuwen says the country needs a concrete, actionable solution to encourage workers to engage and participate in financial wellness offerings from employers.  

 

Therefore, incentives will largely drive future engagement with financial wellness and could even become national policy, he says. Such incentives may come in the form of tax credits or rebates on the national stage, or smaller, company-tailored rewards such as gift cards or cash-based credits on an individual firm basis. For example, an employee who enrolls in a 401(k) and completes an online financial education class would receive a reward for their time and attention.

 

But lower income workers without access to a computer or internet connection lack the resources to complete an online certification, even though this group needs financial wellness education the most. Van Leeuwen says one solution would be to require financial advisers to volunteer time teaching in-person financial education to people who need it, even if it’s meant as a continuing education (CE) prerequisite for advisers. “As advisers, a thing we should be required to do is give back to our communities,” he says. “We should be required to give up our own time to teach people with lesser means on making contributions to retirement plans and on financial wellness.”

 

Yet, with COVID-19 cases rising throughout the country and many workers and business owners afraid of the looming possibility of businesses shuttering again, it’s unlikely any in-person classes will be in session for 2021. In fact, the Biden administration likely won’t make financial wellness education a priority in the next year. Instead, vaccines and getting people back on their feet will take precedence. “This is one of the soft issues currently. This year and next year, it’s going to be all about the pandemic and how we provide a stimulus to those who have struggled during this time,” Van Leeuwen adds.

 

But even as COVID-19 vaccinations take priority, Lowell says he still anticipates financial wellness education will be an emphasis in the future. The past year alone has exemplified a need for financial education in workforces, as more employees demand education strategies from their employers. “Employees continue to call for it, and employers are not being resistant but also are not really knowing how to add it [to their plans],” Lowell says.

 

With a new president comes a fresh administration, including a new Department of Labor (DOL) secretary. And while the nation won’t know until January which party wins the Senate, Lowell says it is clear that cooperation will be needed from both Democrats and Republicans for financial wellness education reform. “There’s going to be this need for negotiation from both sides,” he says.

 

 

Exploring the Lost Opportunities of Small IRA Rollovers

Retirement industry experts say automatic portability could be the solution to a pervasive problem.

During a Tuesday webinar hosted by the Employee Benefit Research Institute (EBRI), titled “Big Challenges with Small IRAs,” Craig Copeland, EBRI senior research associate, noted that safe harbor regulations require that 401(k) assets of less than $5,000 that plan sponsors can roll over to an individual retirement account (IRA) must be invested in a money market fund or other money market account. The real problem with this is that few participants change these investments, Copeland said. As a result, 75.9% of IRAs with balances of less than $5,000 are in money market funds, he said. Among IRAs with less than $5,000 that have been rolled over from a 401(k), 76.7% of the assets are in money market funds, Copeland said.

This is a very pervasive problem, he said. More than one-fifth (22.1%) of IRAs have less than $5,000, and 20.7% of individuals have IRAs with less than $5,000. “The bulk of the owners are between the ages of 25 and 44,” Copeland said. “They have 20 years or more until retirement. These accounts are not being closed. Asset allocation is not being changed, and they are not receiving contributions. There are missed opportunities here.”

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Spencer Williams, president and CEO of Retirement Clearinghouse, said, “Americans change jobs about every five years on average. Every year, 2.4 million participants who change jobs with an account balance of less than $5,000 preserve their savings in an IRA, but 2.9 million participants cash out at the time of a job change. With the taxes and penalties they face, they receive only 40% of their money. Small accounts are actually a big problem.”

This is why Retirement Clearinghouse created automatic portability, which, Williams said, will be rolling out at a major employer in the first quarter of next year. This system automatically transports these small accounts from a prior 401(k) or IRA into the participant’s new 401(k) at a new employer. The Department of Labor (DOL) issued guidance in July 2019 permitting employers to adopt auto-portability as long as they permit participants to opt out, Williams noted. “This is a solution that attempts to take advantage of inertia to create better behaviors and outcomes,” he said.

Courtney Eccles, director of the Secure Choice Savings Program in Illinois, which is the state’s auto-IRA program, said small IRA rollover programs could be structured like Illinois’ auto-IRA program. Employers with 25 or more employees just have to register for the program, enroll all their employees in it and set up the payroll deduction, Eccles said. “They don’t have to handle reporting and are not fiduciaries. Rather, they are simply facilitators.”

Workers are automatically enrolled into the program with an opt-out provision. For the first 90 days, their money is put into a capital preservation fund, after which time it is moved into a BlackRock target-date fund (TDF), the LifePath Index Series. BlackRock also offers growth, conservative and aggressive funds if the participant doesn’t want to be in the TDF.

“Defaults work, and TDFs allow for growth,” Eccles said. “Portability allows for fewer lost accounts. When a worker is added by a new employer, they are connected to their existing account. Lessons from state auto-IRA programs can shape future decisions around defaults for small dollar rollover IRAs.”

«