The COVID-19 pandemic has shined a spotlight on the vital role financial wellness programs can play in helping 401(k) plan participants navigate through unchartered territory, according to a recent webinar and report by Cerulli Associates.
For several years, plan sponsors have emphasized the need for broad financial wellness initiatives, recognizing that retirement savings alone cannot adequately prepare participants for all of life’s financial challenges, but that has become even more apparent in recent weeks, explains Anastasia Krymkowski, Associate Director for Retirement at Cerulli. In the June 12 webinar, Krymkowski previewed some of the key findings from Cerulli’s report, U.S. Retirement End-Investor 2020, with a focus on the role of plan sponsors, advisors and retirement providers can play in volatile times.
Even before the impact of COVID-19, Krymkowski notes that when the firm surveyed 401(k) plan sponsors in late 2019, they actually ranked financial wellness as their top priority. From the employer’s perspective, financial wellness programs can pay dividends in the form of reduced employee stress, increased morale and productivity, retention and improved retirement readiness.
“So, they’re not just thinking about retirement investment menus and administrative fees; they’re thinking holistically about the financial wellbeing of their employees,” she explained. “At the same time, it’s hard for participants, especially if they’re not a high-net-worth investor to go shop around for unbiased advice and to know if they’re getting good advice,” Krymkowski further noted.
Given the current economic anxiety, participants have many questions, including whether they should take a withdrawal from their 401(k), are their retirement investments adequately diversified and whether they should rebalance their accounts. And to answer such questions, many retirement participants lacking a professional source of financial advice turn to their employers and retirement plan providers.
Overall, she notes, 40% of participants don’t have a source of financial advice, and for most, if they do have a source of advice, it’s more likely to be a 401(k) provider or employer in relation to financial wellness communications.
“We see that there’s more trust with the employer to begin with, compared to financial services firms, and employers realize they are playing an important role here in bridging that gap,” Krymkowski observes.
Plan sponsors, therefore, play a vital role in establishing trust, vetting third-party services, and introducing participants to additional financial resources—often at minimal cost from the benefits budget through wellness programs, she explained.
In fact, Cerulli’s data shows that more than 90% of recordkeepers have a financial wellness program, with 70% reporting that this is bundled in the recordkeeping fee. Moreover, retirement specialist advisors identify “participant communication and education” as their top value-add for plan sponsors.
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Participant and Provider Response
Since the outbreak, data shared with Cerulli showed a huge uptick in communication activity, including calls, chats and account logins, where participants are concerned about volatility. Other conversations focused on specific issues, such as should they take advantage of a Roth conversion. Early data indicates, however, that while participants are in more frequent contact with their retirement providers, activity within plan accounts has been modest. Krymkowski notes that most participants just want some reassurance and are staying the course and not taking drastic action.
She further notes that recordkeeper data shared with the firm counters some of the “scary headlines” the country is seeing. Overall, DC recordkeepers note a shift toward more conservative investments in response to recent market volatility. Krymkowski noted that average distributions are ranging from $5,000 to $30,000, depending on the recordkeeper and this is for about 1% of accounts. Accordingly, participants appear to be taking just enough to get through crisis and are “not taking all the money and running,” she notes.
Providers also have been quick to adapt to the call volume and content of inquiries. A pulse survey administered in early April by Cerulli and the SPARK Institute shows that nearly half of retirement plan providers scheduled additional training for representatives in response to COVID-19 and the CARES Act.
Additionally, DC plan providers also increased their outreach efforts by:
- proactively reaching out to plan sponsors (78%);
- hosting webinars (78%);
- issuing press releases from the C-suite (78%);
- authoring white papers (67%); and
- contacting participants for one-on-one planning meetings (22%).
Going Forward
Krymkowski acknowledges that for overburdened employers, it may not be the best time to launch a new financial wellness program, but that also depends on the company, as not all industries have been hit hard. At the same time, there is growing demand for these programs to prove their worth and deliver specific, actionable recommendations as retirement investors balance their needs for short-term solvency against long-term financial goals, she explains.
For now, she notes that retirement plans may have to cede the spotlight to health benefits, business continuity and other issues directly impacting operations and short-term solvency. “Nonetheless, retirement providers play a critical role in steering the financial conversation, educating and advising investors, and—most importantly—helping individuals progress toward long-term goals while meeting short-term obligations,” she emphasizes.
In the meantime, Krymkowski suggests, plans adapt to the current situation by focusing on participants immediate concerns and providing timely information on the CARES Act and volatile markets. Over the longer term, however, she recommends that plans increase their focus on financial wellness and resiliency, with an emphasis initially on solvency, such as paying down debt and establishing emergency savings. From there, Krymkowski suggests that plans should recognize the role of customization by upgrading from generic education to personalized recommendations, taking into consideration the person’s stage in life.
