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Five Plan Sponsor Resolutions and Five Predictions for 2019

01/11/2019
By Jack Towarnicky

Resolutions

  1. Automatic Enrollment: Consider changing your new hire 401(k) default to Roth.
  2. Financial Wellness: Expand your 401(k) into a holistic savings/debt management solution.2 
  3. Health Savings Account (HSA) and 401(k): Challenge participants to optimize savings by contributing the maximum to both accounts. For participants where that is not possible, guide them using a savvy “order-of-contribution” solution.3 
  4. Social Security: Take credit for funding this entitlement and add a payout default that minimizes the cost to those who want/need retirement income.4
  5. Phased/Flexible Retirement/Employment: Give it a try – start by removing barriers to part-time employment. For example, reconsider the medical coverage, financial support, and cafeteria plan opt-out financial incentives offered to those working fewer than 30 hours a week.5

Predictions 

  1. Leakage: Congress and plan sponsors will inadvertently increase leakage from 401(k) plans in 2019. Some of the same plan sponsors will concurrently attempt to curtail liquidity.6
  2. Transparency: Participants approaching retirement who were automatically enrolled and accepted a 2020 target-date fund as a Qualified Default Investment Alternative (QDIA) will be surprised (and perhaps irritated) by the fourth quarter 2018 market volatility.7
  3. Automatic Features: Despite automatic features’ record of success, only a handful of plan sponsors will adopt automatic features in 2019. So, even where the employer sponsors a plan, participation and contribution rates may be suboptimal.8 
  4. HSA: Most plan sponsors will fail to successfully deploy an HSA-capable health option in 2019:
    - Design: Plan sponsors may leave PPO designs unchanged when adding an HSA-capable option as a choice, so design bias may sabotage enrollment in the HSA-capable option.9
    - Adoption: Plan sponsors may avoid adding an HSA-capable option due to subpar marketing – expressed as a so-called “high” deductible health plan.
    - Execution: Few who introduce an HSA deploy automatic features, even though HSAs offer the most valuable benefits tax preference, immediate and future value, an opportunity to accumulate wealth and so much more!
  5. Retiree Medical: Few plan sponsors will adopt the most efficient solution to address this risk exposure.10

1 Roth Will Be 21 Years Old Next Year, 03/06/18, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2018_11
2 The 401(k) As A Lifetime Financial Instrument, Financial Wellness Via Your 401(k) 11/07/17, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2017_15 See also: Sidecar = Suboptimal 07/30/18, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2018_36
3 HSA “Chicken” or 401(k) “Nest Egg” – Which Comes First? 01/19/18, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2018_1 4Looking For A Few “Good” Plan Sponsors, 11/28/17, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2017_16
5A Lump of Coal for Plan Sponsors, 12/26/18, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2018_59
6Stop the Bleeding: The next step in helping workers achieve financial wellness and retirement preparation, DC Insights Magazine, PSCA, Winter 2018. See also: Hardship Withdrawals – An Attractive Nuisance Becomes More Attractive, 2/9/18, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2018_5 See also: Cold Turkey Withdrawal, 11/26/18, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2018_53 See also: Impediments to Saving for Retirement – Part 2 - The Solution? The Right Kind of Liquidity, 11/09/18, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2018_51
7R. Surz, J. Towarnicky, Target Date Model Portfolios, DC Insights Magazine, PSCA, Fall 2018. See also: Default Is Not Mine — I Only Live Here: Considerations regarding target-date funds as the plan QDIA, DC Insights Magazine, PSCA, Winter 2017. R. Surz, An Open Letter To The SEC And DOL: Please Clarify Who The 'Client' Is In Target Date Funds, 12/27/18, Accessed 12/29/18 at: https://seekingalpha.com/article/4230321-open-letter-sec-dol-please-clarify-client-target-date-funds
8H. Greenan, Employers and Participants are Contributing to Plans at Record Levels, PSCA’s 61st Annual Survey results shows that participants are saving enough to be retirement-ready. DC Insights Magazine, PSCA, Winter 2018. See also: J. Towarnicky, Primum non nocere. First do no harm! California and Illinois join Oregon to mandate enrollment of private sector workers in less than optimal IRAs. DC Insights Magazine, PSCA, Winter, 2018. “… Even workers who have access to a lucrative, employer-sponsored plan fail to enroll and participate. Where enrollment is voluntary, only: 57% of eligible workers participate, 37% of workers with annual incomes of less than $30,000 participate, 21% of workers under age 25 participate, 52% of workers ages 25–34 participate, and that drops to 21% if under age 25, and only 53% of workers with between two and three years of service participate, and that drops to 31% if they have less than one year of service. Citing Vanguard, How America Saves, 2018. Figure 30. Accessed 12/29/18 at: https://pressroom.vanguard.com/nonindexed/HAS18_062018.pdf
9Annual Enrollment – Defective Health Plan Designs May Defeat HSA Enrollment, 12/19/18, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2018_57 See also: But I Repeat Myself – You Should Offer a Health Savings Account-Capable Health Option, 10/12/18, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2018_47
10The Disconnect: Few Prepare for Retiree Health Needs/Expenses, 02/15/18, Accessed 12/29/18 at: https://www.psca.org/blog_jack_2018_7

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