More than a year after the start of the pandemic, you may be pleased with the overall growth of the assets in your company retirement plan. After all, more assets generally mean better prospects for retirement security for your valued employees.
But according to a recent triennial survey of wealth held by Americans, some may not be enjoying growth to the same degree as the overall population—nationally and at your company.
The Employee Benefit Research Institute (EBRI) examined data from the Federal Reserve’s Survey of Consumer Finances (SCF) for the year ending 2019. True, that’s pre-COVID-19 and thus doesn’t account for the impact of the virus. But EBRI’s analysis, published in their March 2021 Issue Brief, reveals real disparities facing minority families as they strive to save for retirement.
Summarizing the retirement landscape in general, the information shows that 18.2% of families had an active participant in both a defined contribution (DC) and a defined benefit (DB) plan. While just 15.8% of families with an active participant in an employer-sponsored retirement plan had only a DB plan in 2019, 66% of those families had an active participant in only an employer DC plan, up from 37.5% in 1992.
The importance of individual account plans as a source of wealth for American workers has grown over the years. In 1992, the average account balance for families with money in individual account plans was $79,262. By 2019, the figure had risen to $258,453. The money within these accounts has become the main source of assets for Americans investing in them, accounting for 68.3% at the median for those investing in them.
Individual account plan balances play a large role in overall wealth, too. Those families who have balances in individual account plans have a much higher net worth than do families without one. Median net worth in 2019 was $284,050 for families with individual account plan assets, compared to $35,460 for families without.
EBRI’s Issue Brief points out that families headed by someone whose race or ethnicity were in the minority are generally less prepared for retirement when preparation is based on their retirement assets. The gap between families having white, non-Hispanic heads, as compared to minority family heads, has persisted since at least 1992, according to the SCF. Not only are the minority-headed families much less likely to have an individual account plan, the amount of assets held within them was much less. Still, when families with minority heads did have individual account plans, they tended to contain a larger proportion of their total financial assets than did those of white, non-Hispanic headed families.
EBRI’s Issue Brief is available here: https://tinyurl.com/EBRI-SCF-2019 and from there you can view the full analysis.
Frequently Asked Questions
Q: We always meant to automate our plan audit files, but somehow we didn’t get around to it. When the pandemic hit, we had to send the information via email, and it looks like we will have to do so again. What do we need to know to protect the information we send?
A: First, you are not alone. Before COVID-19, many companies were maintaining all of their plan audit records on paper, and thus faced a challenge when they had to send them off for review. And you’re right, data security is threatened when that transmission is not done properly. It’s a serious matter, since one of the duties of an ERISA fiduciary is managing the plan appropriately and that includes keeping security in mind. As you prepare to send any plan records to a third party, there are two primary things to keep in mind: which information, and how to send it. Understand that “personal protected information” may consist of more data than you think, so do your best to learn exactly what’s included. In general, email is not a secure way to send sensitive information, even if your company has strict controls. So the first thing to do is set and communicate guidance about what can and cannot be emailed. Then, contact anyone who may need sensitive information and find out if they have a secure portal you can use to transmit it. That way, the recipient will need to log in to view the information, reducing opportunities for unauthorized access. If your provider does not have a secure portal for this purpose, you may want to find one that does.
Read more about protecting your plan audit (and other) data in this article: https://tinyurl.com/Cassell-protected
Q: Last fall we heard that we should consider only financial factors in selecting investments for the 401(k) plan’s investment menu, which could make it difficult to include environmental, social and governance (ESG) choices. As the new administration took over in the White House, has anything changed?
A: It has. On Nov. 13, 2020, the Department of Labor (DOL) released its final regulations (following the June 30, 2020, proposed regulations) that many felt discouraged ESG investments in qualified plans, because such investments consider non-financial factors. Soon after taking office, the Biden administration directed federal agencies to pump the brakes on regulations adopted during the Trump administration, including that new DOL guidance. So, on March 10, 2021, the DOL announced that they will not pursue enforcement action against any plan based on failure to comply with the November 2020 final regulations’ impact on ESG selections. Of course, this is not a general policy of non-enforcement; all other applicable rules for selecting and monitoring investments that are based on ERISA and subsequent regulations continue to apply. But it may mean that choosing ESG options for the investment menu of a qualified plan could get easier.
Playing hide and seek with participants?
Here’s help from the Department of Labor.
The Department of Labor (DOL) released guidance in January 2021 that will help plan sponsors keep track of participants. Finding former employees who still have plan balances but no longer work for the company can be challenging. And losing track of them may be a fiduciary issue because of the “exclusive benefit” rule set down in ERISA. It requires that plans diligently seek to distribute assets, even to missing or unresponsive participants.
Best Practices for Pension Plans is one of a set of three related publications released by the DOL on Jan. 12, 2021. It provides information to help plan sponsors recognize red flags that could lead losing track of participants and cites examples of best practices plans can use to avoid the situation.
As plan sponsors figure out their plan priorities for 2021, says Mercer in a new report, they should give some thought to their participants’ values. In their Reinventing Retirement 2021 priorities report, the international consulting firm says 2020 revealed the critical importance of focusing on employees and what they need, want and expect.
A few of the DOL’s suggestions for avoiding trouble with missing participants are:
- Maintain accurate census information. Consider periodic contacts with participants and beneficiaries to be sure their contact information is correct. Try to keep home and work addresses, phone numbers, social media contact information and emergency contact information.
- Follow up on undeliverable mail or email and uncashed checks.
- Keep beneficiary information up-to-date.
- Put the plan’s policies and procedures in writing and be consistent in following them.
- If you do “lose” participants, the DOL has some suggestions for your searches:
- Cross-check other contact information that may be available, such as health plan records, for data that may lead to the missing participant.
- Ask colleagues who worked closely with the missing participant if they have a forwarding address. Of course, it is important to maintain privacy, so you may want to ask the colleague or beneficiary to forward a letter for you, or to ask the missing participant to get in touch with your office.
Access the DOL’s guidance here: https://www.dol.gov/newsroom/releases/ebsa/ebsa20210112
Second Quarter 2021
Consult your plan’s counsel or tax advisor regarding these and other items that may apply to your plan.
- Audit third quarter payroll and plan deposit dates to ensure compliance with the Department of Labor’s rules regarding timely deposit of participant contributions and loan repayments.
- Verify that employees who became eligible for the plan between July 1 and Sept. 30 received and returned an enrollment form. Follow up for forms that were not returned.
- For calendar-year safe harbor plans, issue the required notice to employees during October or November (within 30-90 days of the beginning of the plan year to which the safe harbor is to apply). Also, within the same period, distribute the appropriate notice if the plan features an EACA (Eligible Automatic Contribution Arrangement), QACA (Qualified Automatic Contribution Arrangement) and/or QDIA (Qualified Default Investment Alternative).
- Prepare an announcement to employees to publicize the plan’s advantages and benefits and any plan changes becoming effective in January.
- Conduct a campaign to encourage participants to review and, if necessary, update their mailing addresses to ensure their receipt of Form 1099-R to be mailed in January for reportable plan transactions in current year.
- Check current editions of enrollment materials, fund prospectuses and other plan information that are available to employees to ensure that they are up-to-date.
- Provide quarterly benefit/disclosure statement and statement of plan fees and expenses actually charged to individual plan accounts during prior quarter within 45 days of end of last quarter.
- Prepare and distribute annual plan notices for calendar-year plans, such as 401(k) safe harbor for safe harbor plans with a match, QDIA annual notice, automatic enrollment and default investment notices at least 30 days before plan year end.
- Prepare to send year-end payroll and updated census data to the plan’s recordkeeper in January for year-end compliance testing (calendar-year plans).
- Verify that participants who terminated during the second half of the year selected a distribution option for their account balance and returned the necessary form.
- Review plan operations to determine if any ERISA or tax-qualification violations occurred during the year, and if using an IRS or DOL self-correction program would be appropriate.
Web Resources for Plan Sponsors
Internal Revenue Service, Employee Plans
Department of Labor,
Employee Benefits Security Administration
401(k) Help Center
Plan Sponsor Magazine
Plan Sponsor Council of America
Employee Benefit Research Institute
Society for Human Resources Management
International Foundation of
Employee Benefit Plans
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The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance, nor as the sole authority on any regulation, law, or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.