Plan Sponsors Ask...

Q: We are considering adding a financial wellness program as part of our retirement plan benefit program. Unfortunately, there isn’t a lot in the budget to work with. How might we approach it? 

A: As you probably know, workers are becoming increasingly interested in financial wellness education that can help reduce financial stress and prepare them for economic uncertainty. In fact, a 2021 survey by Brightplan revealed that when employees ranked employer-sponsored benefits, financial wellness was consistently ranked higher than workplace standards such as health care and vacation time—and was surpassed only by salary.

Here are two activities to consider before launching a financial wellness education program in the workplace:

  1. Conduct an employee survey. Employees should be formally surveyed to get a sense of how they can be supported as they continue to return to their pre-pandemic lives. Employees should specifically be asked which areas of their personal finances (e.g., building an emergency savings account or reducing debt) would benefit most from employer support.

  2. Quantify your numbers to justify funding the program. Employers should consider quantifying how financial stress affects their bottom line through factors such as lower productivity, absenteeism, and medical costs. They may also want to consider identifying and targeting groups of employees who need the most help, focusing initial financial wellness education efforts on them.

Q: Our plan committee is thinking about purchasing fiduciary liability insurance. Is a fidelity bond the same thing as fiduciary liability insurance? 

A: The fidelity bond required under the Employee Retirement Income Security Act (ERISA) of 1974 specifically insures a plan against losses due to fraud or dishonesty (e.g., theft) by persons who handle plan funds or property. Fiduciary liability insurance, on the other hand, is an insurance plan fiduciaries purchase to protect themselves in the event they breach their fiduciary responsibilities with respect to the plan. Please note that courts can hold plan fiduciaries personally liable for losses incurred by a plan as a result of their fiduciary failures. Even though it isn’t required, fiduciary liability insurance could be an important financial safety net for plan fiduciaries. Although obtaining ERISA fiduciary insurance is considered prudent, it does not satisfy the fidelity bonding required by ERISA.

Q: During our recent annual plan review, we were happy to see that most of our employees have continued to make contributions to their retirement accounts during the pandemic (and very few took hardship withdrawals). Was this unique to us, or was it more of a universal trend?

A: Americans continued to save for retirement through DC plans despite ongoing economic stresses brought about by the Covid-19 pandemic, according to the Investment Company Institute’s Defined Contribution Plan Participants’ Activities, First Quarter 2022. The study tracks contributions, withdrawals, and other activity in 401(k) and other DC retirement plans, based on DC plan recordkeeper data covering more than 30 million participant accounts in employer-based DC plans through March 2022. The latest recordkeeper data indicates that plan participants remained committed to saving and investing: a preliminary estimate indicates that only 0.9 percent of DC plan participants stopped contributing to plans in the first quarter of 2022. That compares with 0.8 percent in the first quarter of 2021, and 1.4 percent in the first quarter of 2020.

In addition, during the first quarter of 2022, 1.8 percent of DC plan participants took withdrawals, compared with 2.2 percent for the first quarter of 2021. Levels of hardship withdrawal activity were also low, with only 0.9 percent of DC plan participants taking hardship withdrawals during the first quarter of 2022, compared with 0.6 percent of participants in the first quarter of 2021.

2022 Pension Plan Limitations

401(k) maximum elective deferral                                              $20,500*

Defined contribution maximum annual addition                         $61,000

Highly compensated employee threshold                                   $135,000

Annual compensation limit                                                           $305,000

*$27,000 for those age 50 or older, if plan permits