Benefits Quarterly

• Employee Benefits After the 2020 Election
  by Anna M. Rappaport
  This article provides a very broad overview of the U.S. retirement and health benefits systems and offers a societal context for the issues facing American society in 2021 and beyond, including a divided country, the COVID-19 pandemic, poverty, food and housing insecurity, and gaps in the health care and retirement systems. It provides a list of common issues facing retirement systems internationally, discussing health and retirement system issues that are likely to get attention, with some attention to alternative points of view. Health care issues include Medicare reform, costs, the uninsured, health care deserts, and a variety of issues relative to the delivery of health care and causes of illness. Retirement benefits issues include Social Security, retirement benefits payout, people without employer-sponsored plans, savings levels, leakage and risk sharing. The article provides some perspective on areas of divided views and future questions for policy makers and employee benefit plan sponsors.
• The Continually Evolving Role of ESG in Retirement Plan Investments
  by Frank Szymanek and Tom Loftus
  The Department of Labor (DOL) continues to wrestle with its guidance on the topic of environmental, social and governance (ESG) factors within investment solutions offered in retirement plans, and this is likely to continue under the current presidential administration. However, the reality is that the investment industry is moving faster to incorporate these factors, making them virtually indistinguishable from any alternative option. This article briefly reviews the DOL’s evolving thinking and emphasizes the current and anticipated future state of its guidance. It then discusses the current integration of ESG factors as an integrated best practice for the management of funds. Finally, it considers the current and anticipated future role ESG plays in target-date options. This important information will assist plan sponsors in meeting their fiduciary responsibilities by understanding the role and presence of ESG.
• How Pooled Employer Plans Could Transform the Retirement Saving Landscape: A Road Map From the U.K.
  by Catherine Reilly
  Starting in 2012 with the largest employers, the United Kingdom has required automatic enrollment for all eligible employees (in practice, the majority of employees) into a retirement plan. The proliferation of small plans that followed this mandate presented a challenge for traditional business models, which were designed for a small number of large plans. One of the key outcomes of automatic enrollment has been the increase in the use of master trusts—the U.K. equivalent of pooled employer plans (PEPs). This article describes the resulting changes that occurred in the U.K. and evaluates what conclusions we can draw for PEPs in the United States where, so far, 40 entities have registered as PEP providers—a number that is increasing steadily. Eventually, PEPs could become the retirement plan of the future, incorporating the best elements of defined benefit plans, such as a long-term investment horizon and mortality pooling, while retaining the flexibility and the funding advantages of defined contribution plans.
• Alternatives to Financial Literacy: Helping Pension Participants Invest
  by John A. Turner, Ph.D.
  It is well-documented that many people have low levels of financial literacy. The solution to this problem is less clear. One initial response has been to develop education programs that attempt to improve financial literacy. However, this approach places the burden on pension participants and their employers. This article argues that basic financial literacy is desirable but that it is unreasonable to expect pension participants to construct well-diversified portfolios that are aligned with their levels of risk aversion. The article offers three alternative approaches for pension participants: (1) simplify investment products in financial markets to make it easier to invest in a diversified portfolio that meets individualized needs, (2) simplify pension plans to make it easier for participants to enroll, choose contribution levels and select a portfolio, and (3) improve the quality and reduce the cost of financial advice through innovation, such as robo-advisors.
• Tax-Effectiveness of Qualified Longevity Annuity Contracts in Retirement
  by Stephanie Wendling
  Much of the financial planning discipline puts emphasis on savings for retirement income so that taxpayers are not running out of money to meet their financial goals. Due to the importance placed on retirement funds, researchers tend to analyze qualified longevity annuity contracts (QLACs) on an insurance basis for income purposes rather than a tax basis. In a comprehensive financial plan, planners should also consider the tax impact of each of their decisions and retirement tools for their clients, including whether their savings vehicles are the most effective for earnings before and in retirement. If they can utilize tax-deferred savings, then the return on their investments would be higher, since they don't pay taxes to the federal government up front. From these facts, it appears that one of the most important areas to consider regarding a QLAC would be whether it is tax-effective for retirees. This article will go into details on the tax-effectiveness of QLACs and whether clients will actually receive a benefit of this deferral.
• How One Employer Reversed Metabolic Syndrome and Impacted Workforce Culture in a Not-So- Health-Centered Environment
  by Steven L. Halterman, CEBS
  This article describes the two-year outcomes and key elements of one large employer’s long-term, high-dose, integrated health coaching and primary care promotion program. In just three years, nearly 3,000 employees enrolled in the program, and more than two-thirds successfully graduated from the program. The author explains how the program has positively influenced and impacted workforce culture, health behaviors, health risks, productivity, connectivity, attitudes and retention.

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• Maximum Utility: Your HSA Can Do Quadruple Duty
  by Jack M. Towarnicky, CEBS
  The perception of health savings accounts (HSAs) has evolved for some benefits professionals. Once considered to have only limited value for a minority of workers, more now view HSAs as a “health and wealth” rewards strategy. However, this evolution has not prompted broad coverage, widespread enrollment or a change in savings habits. Impediments to enrollment remain. Few plan sponsors have embraced 401(k) precedents and deployed automatic features. The author explains how HSAs are capable of quadruple duty and more—that HSAs offer superior utility that plan sponsors and employees cannot afford to forgo.
• Want to Avoid Legal Jeopardy? Adopt Solutions That Enable Portability for Small Accounts
  by Spencer Williams
  Despite the positive benefits that accrued to plan participants, the Pension Protection Act also had an unintended consequence: a surge in small 401(k) accounts. The lack of seamless plan-to-plan portability makes roll-ins to new employer plans time-consuming and leads to voluntary and automatic cashouts for small accounts. A solution is adopting auto-portability, a bipartisan remedy. With auto-portability, plan sponsors, recordkeepers and providers can build a portability infrastructure within the U.S. retirement system that helps them mitigate their future fiduciary liability while simultaneously helping participants retain their hard-earned retirement savings and increase their retirement income.
• The “1-2-3s” of Pension Derisking: Three Tactics for Financial Stability
  by Zorast Wadia and Heidi tenBroek
  In today’s stressed economy, employers with defined benefit (DB) pension plans have a number of ways to pursue derisking their plans, but not all of these methods are created equal. Terminations, freezes and lumpsum payouts are common. Employers don’t have to “throw the baby out with the bathwater.” Pension plans provide critically important human resources (HR) tools in terms of workforce management. Because so many employers have moved to defined contribution (DC) plans, a company that offers a pension could have a crucial differentiator in recruitment and retention. And in times of contraction, early retirement windows are helpful, as is the ability to finance them over time. There are innovative derisking strategies that enable employers to maintain what is most useful about DB pension plans while also providing financial stability. The issue is essentially one of finding the right level of risk sharing between an employer and an employee in a “new normal” that seems to be ushering in once-in-a-lifetime economic crises one after the other. This article explores three tactics that Fortune 500 companies may consider for analyzing risk, derisking pensions and increasing financial stability.
• Diminished Capacity and Retirement Planning
  by Anna M. Rappaport
  Diminished capacity affects the ability to communicate and use technology, which are important factors in being able to interact with financial institutions and many employee benefit plans. Diminished capacity also impacts the ability to interact with family, friends, the medical community and other businesses. The Department of Labor ERISA Advisory Council chose “Considerations for Recognizing and Addressing Participants With Diminished Capacity” as one of its topics for 2020. This article, which reviews the research and suggests strategies that employers can use to respond to issues related to diminished capacity, is largely based on the author’s testimony to the advisory council in September 2020. It reflects her personal views and not those of any organization.
• Exploring Multiple Employer Plans
  by Allen T. Steinberg
  In response to gaps in employer offerings, policy makers have moved to encourage the use of various employer pooled arrangements that are designed to reduce the cost and administrative burden of plan sponsorship. One of these arrangements is multiple employer plans (MEPs) established by associations of employers (association MEPs). This article describes some of the key features of association MEPs as well as several items to note in considering the vendor team. The author demonstrates that although the use of an association MEP enables the retention of certain services that would be prohibitively expensive for each participating employer, the arrangement can be seen as a two-edged sword. Employers will be drawn to an association MEP for the combination of lower costs and additional services. However, once in the MEP, the plan fiduciaries are charged with exercising their fiduciary responsibilities in the context of being in a MEP—and this means justifying the reasonableness of vendor fees in that context. Fiduciaries cannot simply rest on the savings recognized in the transition from single employer plans to a MEP. Rather, as stated in ERISA, they must exercise the prudence appropriate for “an enterprise of a like character and with like aims.”
• Midyear Changes to ADP/ACP Safe Harbor Plans
  by Daniel Schwallie, Ph.D.
  When guidance was issued in 2016 regarding midyear changes to ADP/ACP safe harbor plans, no one had an inkling that four years later hundreds of employers would implement midyear reductions or suspensions of safe harbor contributions to their actual deferral percentage (ADP) and/or actual contribution percentage (ACP) safe harbor plans due to the coronavirus pandemic of 2020. This article reviews the available guidance on midyear changes to ADP/ACP safe harbor plans.
• Defined Benefit Plan Designs
  by Richard J. Hudson
  Cash balance plans, variable annuity plans and variable accrual plans have undergone benefit plan design changes due to trends in recent years. This article discusses the advantages, disadvantages and valuation concerns for each different plan design. The author uses financial modeling to see how the designs work and how plans mitigate the risk of underfunding.

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• The Impact of the Coronavirus Pandemic on Employee Benefits
  by James A. Klein
  As this article goes to press, the COVID-19 pandemic continues to evolve, and when we will witness a true turning point—with the widespread distribution of a vaccine—is still unknown. But what is known is that the health and economic impact of the pandemic has already meant considerable change for the employer-sponsored benefits system, and it holds the possibility of even more significant social and public policy changes. As a society, we will live for years in the shadow of this devastating event. We can take some solace from the knowledge that for all the risk it poses, it also opens the door to changes that will strengthen employer-sponsored benefits. This article discusses such changes in health benefits (behavioral health, telemedicine, and health care costs in general and related to COVID-19), retirement benefits (defined benefit and defined contribution plan interactions, other benefit priorities) and more fundamental changes (social determinants of health, Medicare for all, caregiver benefits and women’s financial security). In creating a reckoning about the state of financial security, the pandemic also offers opportunities and, hopefully, a corresponding commitment to address them.
• Amid the Pandemic: Seven Win-Win Solutions to Support Employee Health and Financial Well-Being
  by Catherine Collinson
  Employers play an invaluable societal role in supporting workers’ achievement of long-term financial security in ways that transcend the offering of a job and paycheck. Their role has become even more crucial, albeit precarious, amid the COVID-19 pandemic, which has undermined the profitability of businesses and is causing employers to confront difficult decisions. Based on its survey findings, the nonprofit Transamerica Center for Retirement Studies® (TCRS) has identified seven win-win solutions that can help employers improve productivity and optimize workforce management while supporting their employees’ health and financial well-being: (1) be an age-friendly employer; (2) offer alternative working arrangements; (3) promote wellness in the workplace and home; (4) provide a retirement savings plan, financial education and planning resources; (5) provide other health and welfare benefits that can help improve financial security; (6) facilitate flexible transitions to retirement; and (7) design programs and benefits with affordability and portability in mind. Working with their human resource and benefits advisors, employers can consider these options now and in the future, when the broader economic picture improves.
• Retirement Risks and Planning: What Did COVID-19 Teach Us?
  by Anna M. Rappaport
  COVID-19 created major new health risks for Americans of all ages and, at the same time, had a major impact on the economy and daily life, exacerbating a wide variety of retirement risks. The retirement system faced significant challenges before the pandemic, but the pandemic and its consequences may change the way people look at retirement issues. This article reviews how COVID-19 changed the economic environment, the work environment and the situation for retirees. It provides insights into employer responses to date and a discussion about what they might do in the future. Organizations that make major changes in employment strategies will also need to revisit their retirement benefits strategies. This article further provides a discussion of retirement risks based on recent Society of Actuaries (SOA) research and includes COVID-19 impacts on the risks. It brings together consideration of retirement risks, the environment before COVID-19, changes in that environment and possible future directions for retirement benefits. In 2020, SOA released a new version of its “Post-Retirement Risk Chart” as well as several reports on retirement risk and COVID-19. These reports were also used to inform this article.
• It’s Time: COVID-19 Gives New Urgency to Paid Leave
  by Jamie Kalamarides
  The COVID-19 outbreak exposed deep fissures in our public health and economic systems, pervasive racial and social inequality, and our collective susceptibility to financial disruption. This article explains how COVID-19 became the tipping point toward a paradigm shift caused by the impact the lack of paid leave had on individuals, society and the workplace. The author describes the effect of the lack of paid leave on workers’ overall wellness, the dangers of doing nothing and key considerations moving forward. Facing these challenges calls for bold thinking and will require public-private partnerships to create innovative and equitable solutions that enable people to maintain a dignified standard of living regardless of economic volatility. It is not just the right thing to do ethically; there is also a compelling business case for it. Designing an end-to-end system, rather than simply constructing a patchwork of systems, will help us fulfill the vision of making financial security an achievable goal for all people in the United States.
• Imagining the Unimaginable: Best Practices for Returning to Work Post-COVID-19
  by Nancy Arenas and Tara Silver-Malyska, CEBS
  Former UCLA Basketball coach John Wooden said, “Adversity often produces an unexpected opportunity.” Although much devastation has resulted from the COVID- 19 crisis, corporate America has gained more knowledge, has become more empathetic and accommodating, and has shored up its processes and programs in the likely event this type of devastation should reoccur. This article addresses what we have learned from the pandemic and provides eight lessons on how we anticipate the new normal. It also describes how the business of work is different and offers overall best practices for returning to work post-COVID-19.
• Measuring the Impact of COVID-19 on Employee Benefits
  by Justin M. Held, CEBS
  The COVID-19 pandemic has had significant implications for workplaces that extend into the realm of employee benefits. In a follow-up to a similar survey conducted last spring, the International Foundation of Employee Benefit Plans conducted a benchmarking survey in November 2020 to capture a snapshot of employee benefits during the pandemic.
• Retirement Planning Beyond the Financials
  by Alan Spector and Rick Storms, CEBS
  As we focus on retirement planning, one approach is to also look beyond the financials and help employees consider all aspects of their life in retirement. This may seem like the “soft stuff,” but the soft stuff is hard, and it significantly shapes the hard stuff. This article discusses how going beyond the financials helps position individuals for a full and well-planned retirement. Providing this approach will make existing financial wellness programs even more effective. It’s good for retirees, preretirees and younger workers. As it helps all employees, the employer benefits from increased work performance, thereby maximizing the return from financial wellness programs.

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