Q: We like to keep an eye on trends that could impact retirement for our employees. Is anything new on the horizon these days?
A: Yes, there are some trends to watch, although some have been on our (and probably your) radar for the last few years. The American Retirement Association (ARA) identified seven of them in a September 2018 presentation for ASPPA. Take particular note of litigation over plan fees. Several factors have emerged among plans undergoing fee litigation, according to the presenter, ARA Chief Content Officer Nevin Adams. Plans that hold multi-billions in assets are often targeted, he said, especially those that include retail-class mutual funds. Also under scrutiny are plans with proprietary funds in their investment line-ups; plans that fail to regularly benchmark their plans and investments; those using assets as a basis for recordkeeping charges instead of per-participant fees; and plans that aren’t working with a qualified retirement plan advisor. None of these factors are illegal, of course. But if they apply to your plan, a thorough review of your processes and procedures could be helpful in maintaining the plan’s effectiveness — and keeping fiduciaries out of court. Learn about more trends identified in the presentation at https://tinyurl.com/ARA-7-trends.
Q: Many of our employees are young and carrying debt related to their education. As we implement our financial wellness and retirement communications, we’d like to address the question we sometimes hear about whether it’s better to channel income toward paying off loans or into the 401(k) plan. What are your thoughts?
A: Like so many other choices in life, this one is complicated. The best answer is, of course, to do both. But you don't want
to overwhelm employees so they give up and fail to take any action. We all know that, when it comes to saving for retirement, the earlier the better. But carrying student debt into retirement isn't smart, and paying if off can free up funds to save for the future. You're on the right track by educating employees about their overall financial health. As you develop the program, these suggestions may help employees struggling with competing priorities. Tell them to: find out if your bank offers an interest rate reduction for automatic payments on your loan; check for tax breaks you could receive on your student loan repayments; pay down the balances of your highest-rate debts first; and watch out for pre-payment penalties if you do manage to pay your student loans ahead of schedule.
Q: Employees have been asking about including socially responsible options among the 401(k) plan’s investments. We want to be responsive but have some concerns. Can you share some of the basics of socially responsible investing? And how might it impact our fiduciary responsibilities?
A: When people refer to responsible investing, they often refer to ESG — environmental, social and governance. You may be surprised to learn that ESG investing has been around for more than 30 years; however, its popularity and importance have increased dramatically in the last decade. An interesting statistic from RBC Global Asset Management shows increasing confidence in performance related to ESG. Their survey in 2018 found that 38% of respondents believe integrating ESG into their investing can improve results. That’s up 14% from one year earlier, and it goes a long way toward alleviating concerns about including ESG among investment choices. In addition, more than 50% of survey respondents say that incorporating ESG into their investment approach is part of their duty as a fiduciary, double the number who said so in 2017. There is more information on this topic here: https://tinyurl.com/RBC-ESG-2018.