401(k) Blog Posts

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Consequences of Unrestricted MEPs

With the lifting of restrictions on Multiple Employer Plans “MEP” two major shifts are likely to occur in the retirement plan market. First is that all small plans will gravitate to local MEPs that do not include their direct competitors. The second is a massive increase in demand for local MEPs.

The MEP requirement that participating employers must be in the same industry has stunted any chance of growth. Small businesses for whom MEPs would offer great benefits would have to join forces with the very companies they face every day on the competitive battlefield. This problem is made even more acute by the fact that most small businesses serve a local area so the baker would have to join forces with the baker in the same town. To provide economies of scale, the small businesses must be geographically close together.

The unrestricted MEP would permit multiple MEPs in one locality, each serving a diverse set of non-competing businesses. With the removal of the requirement to collaborate with competitors, it is reasonable to assume that small businesses would find the better, cheaper and less risky plan to be irresistible.

The second shift is anticipated to be for new MEPs. This market would be unattractive for large service providers with centralized operations. Locally situated advisors could fill the need but often lack the technical expertise to administer an MEP. The most likely sector are third party administrators (TPAs) who possess the knowledge and skill and already serve these local customers.

The TPA need only become familiar with how to mitigate the fiduciary risk and could almost immediately establish an MEP.

The MEP also opens a new market that consists of small businesses that do not currently offer plans to employees. There is the potential to double the size of the small plan market within two years.

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The Case for Plan Sponsors to Support Participants' Financial Health

Is an employer’s decision to provide assistance with an employee’s 401k a sound investment?  The answer is almost certainly yes, with this kind of benefit having significant impacts to productivity and quality of work.

Historically, 401k providers have long been offering tools and resources to help plan sponsors drive saving for retirement to the top of participants' priority list. For many years however, providers and employers were failing to see the much, much bigger picture.

How can one expect employees to focus on their financial future when they do not have control over their current financial situation?

Fortunately, employers and plan providers have come to understand the impact employees' current financial health has on those employees’ overall well-being.

Employers now realize that financial stress affects employees' health, therefore their use of health benefits, as well as their rate of absenteeism.

The key question for employers to consider is this: If employees spend an average of thirteen hours/month preoccupied about their financial situation, what are they not doing during that period? (Mercer: 2017 Inside Employee's Minds Survey)

Employers have acknowledged how financial woes affect productivity and quality of work.

If employees cannot afford to pay for reliable and quality child care, their utility bill, their rent, their student loan debt, transportation, health care; are these really the employer's concern? Without question they are and employers realize the direct impact that these employee stressors have on their bottom line, so focusing solely on increasing plan participation and contribution rates is simply not an option. The employee's entire financial picture must be addressed as it impacts just about everything.

DALBAR analysts recently reviewed how plan sponsor websites address financial wellness and saw that a substantial number do, in fact, address financial wellness; and among those that address financial wellness online, the majority present full and comprehensive programs. Others offer support for more specific stressors such as student loan or credit card debt.

Below are examples of innovative approaches to financial wellness implemented by several plan provider firms.

T. Rowe Price offers a highly customized three-part wellness program focusing on:

1. Assessing employees' current financial health - The firm utilizes its Confidence Number, a personal retirement readiness score, and resources such as planning calculators, videos and account aggregation capabilities to complete the first phase of the wellness program.

2. Setting meaningful financial goals - Two programs are offered to assist with this phase of the wellness program, one being its Retire with Confidence educational program and the firm's SmartDollar program that attempts to drive behaviors such as accumulating an emergency cushion, paying down mortgages or funding college.

3. Make reaching goals automatic - The third phase utilizes T. Rowe Price's DoubleNet Pay cash flow management tool to establish automatic payments to reduce debt, build an emergency fund, pay bills and meet long term goals.

SunTrust's mobile optimized onUp portal seeks to change participants' mindset from stress to confidence and encourages them to become a part of the onUp "movement".

This highly engaging portal is packed with self-paced training modules, coaching, a MyMoney Desktop - a one-stop financial management shop, financial tools, games and so much more.

Participants are encouraged to accept the onUp Challenge and travel through the 7 Lands of Confidence.

Bank of America Merrill Lynch utilizes it 2017 Workplace Benefits Report findings to drive home to employers the need to implement their 6 Step Financial Wellness program.

The vulnerability of Millenials is focused on with respect to their lack of financial education.

BoA Merrill Lynch points out the hit that productivity takes due to employees' preoccupation with their finances.

Fidelity reveals to sponsors how the findings from its research drove the firm to:

  • Define financial wellness
  • Develop its Financial Wellness Score
  • Establish a method for gauging the financial wellness of a workforce.
  • The firm goes on to provide a sample "Workforce Analysis" result.

Among other key facts, Fidelity also points out the impact that financial stress has on employees' work performance.

Acting on its Workplace Survey findings that 79% of employees with student debt are hampered in their ability to save for retirement, Fidelity tackles this issue head on with a suite of resources to help sponsors promote the use of its Student Debt tool. 

The tool's ultimate goal being to empower employees to take control of their financial future.

DALBAR's study, Supporting the Current and Future Financial Health of Plan Participants, pinpoints industry offerings presented on plan sponsor sites to address participants' current financial health as well as the measures utilized to enable employers to gauge the health of their plan (impacting employees' future financial health). For more information please visit our store.: https://dalbar.com/catalog/product/136

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  • By Shelley-Ann Eramo
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  • 7/11/2018
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  • 2
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  • Categories: 401(k)