PANC 2020: Making Decisions About Employer Matches, Safe Harbor Designs and Cash Flow

On Day 2 of the 2020 PLANADVISER National Conference (PANC) online, panelists discussed changes to employer matches, safe harbor designs and cash flow and how financial advisers and plan sponsors have been handling the considerable impact of COVID-19.

Since March, all businesses have felt at least some effects of the pandemic in their overall operations. According to an Ardent Partners study, for 33% of companies, that impact was massive; for 25%, it was high; 42% said they felt only some impact.

While some businesses suffered furloughs, bankruptcy or even an end to operations, others noticed the effect in their retirement plan—specifically in employee contributions. According to Stace Hilbrant, managing director of 401k Advisors in Chicago, around a fourth of his company’s client base suspended employer matches, and others deferred discretionary contributions. This included clients in all sectors, from manufacturing firms and educational institutions to professional sports teams, he said. “Depending on what your client base looks like, everyone has been impacted by COVID to some degree,” he said, in the virtual panel.

Each plan is designed, and operates, differently from any other—each having unique participants, investment options and features, said Jason Chepenik, managing partner at Chepenik Financial in Orlando, Florida. An adviser’s role is to figure out the needs of each participant, especially if, because of adverse circumstances, a person has made only limited contributions. “There’s a lot of focus on fiduciary considerations and responsibility” among employers and financial advisers these days, he noted. “You should make sure the plan is running effectively for the participant.”

As to matching contributions, which many employers have felt the need to drop, Chepenik said guiding clients along alternate paths, maybe encouraging them to add automatic enrollment or make nonelective contributions, can lessen participants’ loss. Similarly, those employees who opted for auto-enrollment in the past will have money in their retirement account, should they need to take out a coronavirus-related distribution (CRD) or loan, as provided for by the Coronavirus Aid, Relief and Economic Security (CARES) Act, Chepenik said.

Hilbrant points out that, because retirement readiness was a trending goal for plan design, it’s likely that participants will question whether cuts will affect their preparedness down the line. “We spent all these years talking and communicating about retirement readiness, so some are wondering whether these changes, for one or two years, will have an effect,” he said.

Therefore, advisers are urged to focus on communication strategies, including education about Social Security, personalized solutions involving a participant’s financial health, and, for some, the possible need to readjust their retirement plans.

Any communication feedback you receive should also be reported back to the plan sponsor, Chepenik said. If multiple participants are asking for the employer to become more involved with the plan, including offering more leadership or empathy, then it’s likely the whole workforce shares the same feeling, he said. When you have open lines of communication, he said, “you can have more personalized, customized communications for the participants.”

Applying a discretionary matching contribution can also provide flexibility to the employer, said Lander. Employers can choose to make a discretionary contribution; however, they are not required to make them annually. This protects the employer from overcommitting, in case its business performs poorly. Adding this feature can also remind participants exactly what their plan offers, said Lander. “We use that as a way, every year, to communicate what the match is, why it’s increased or decreased, and as a way to merchandise the plan,” she said. “The discretionary contribution gives you an opportunity to recommunicate what the match is.”