PLANADVISER - Winter 2023 - 30

Plan Design
payout provisions, and there also needs
to be education. "
The default for withdrawals in many
401(k) plans remains a one-time distribution,
Stroope notes.
" This is probably the largest account
balance that any individual has for retirement,
and, for the most part, we're still
seeing people using it on a pre-tax basis, "
Stroope says. " That can be a huge tax hit,
or one that pushes them into an IRA and
they take all the assets out of the plan. "
Instead, plans should, at a minimum,
allow for systematic withdrawals, lowcost,
or free, distribution, and a seamless
process for moving money from
a 401(k) into a checking or other bank
account, Voris says.
For Clients to Keep in Mind
For clients that want to help their
retirees who remain enrolled, advisers
can make sure the plan allows for rollovers
into it, to enable these participants
to bring in outside assets. In this
way, you make it easier for them to have
a holistic view of their finances and
manage those in a streamlined way.
You should also make sure that the
Get Participant Buy-In
ONCE a plan has withdrawal options and other retiree-friendly features
in place, it also needs an education campaign to make sure participants
are aware of them. The sponsor should reach out to participants well
before they give their notice for retirement.
" If the sponsor tries to tell people at their point of retirement that it
has investment options and educational classes for them, it's too late
to capture their attention, imagination or commitment, " says Teresa
Hassara of Principal Financial Group. " They've been thinking about and
planning for retirement well before they signaled it to their employer.
The sponsor has to signal through communications whether its organization
thinks about the plan as being 'to' or 'through' retirement. "
One opportunity advisers can suggest for engaging and educating
participants as to in-plan retirement options might be when catch-up
contribution notifications are sent to 50-year-old participants.
" It should be made part of the culture, so the financial coaches on
staff and recordkeepers are talking about managed spending and other
retirement products to anyone over 50, " says Nathan Voris of Morningstar.
" Maybe there's a different web or mobile experience for folks as they
get closer to retirement. These are basic blocking-and-tackling things. "
Such communications could continue all the way through the exit
interview when the employee retires. Among the information the
company provides them at that point should be clear and concise information
about the benefits of staying in the plan, including bankruptcy
protection, institutional pricing and fiduciary oversight. -BB
plan is not charging retirees the additional
plan fees that the sponsor pays on behalf of active
participants, Hammons says.
" Historically, in our industry, there was a school of
thought that terminated participants should just take
their account balances and go somewhere else, and, if they
were going to stay, we'd let them pay for their own account
administration, " he says. " That's a disincentive, and that
topic needs to be vetted out and discussed again. "
Additionally, urge clients to consider how the plan treats
the beneficiary after a participant passes away, Hammons
says. That may be a significant concern for retirees, who are
typically older than active participants.
" If the plan only allows beneficiaries to take out the
funds in a lump sum, or it forces them out immediately,
the plan sponsor might want to look at other options [if
available], " he adds. " That [limitation] could make retirees
nervous because they won't be there to advocate for their
beneficiary, who might have to roll out of the plan. "
Reevaluate the Investment Menu
Plan advisers can also help plan sponsors reevaluate their
investment menu through the lens of serving both workers
and retirees to find a range of investment choices that serves
both groups. That would be in addition to target-date funds
that go through, rather than to, retirement, and would
potentially even include a lifetime income component.
" We already know that when we have auto[mated] solutions,
we have great uptake, " Hassara says. " When we do
auto-enrollment, 94% of participants stay, and if they have
auto-escalation they increase their savings. So you have
to believe that if we could bundle the common needs of
retirees into an automated service on top of that, that, too,
would be successful. "
Plan sponsors might also consider additional fixedincome
options for retirees, who may have a lower risk
tolerance than other participants. Other retiree-focused
products might include lifetime income solutions, managed
spending plans within managed accounts, and minimum
distribution features.
Self-directed brokerage windows can also serve retirees
who want to keep assets in the plan but work with an
outside adviser to make personalized choices based on their
time horizon, risk tolerance and other goals.
" Some recordkeepers offer this solution with no or low
trading costs and offer third-party adviser access-usually
through some type of power of attorney document-to help
facilitate those trades or exchanges on the participant's
behalf, " Stroope says.
Whichever investment choices a plan sponsor puts in
place for retirees, it needs to keep convenience and service in
mind, Hassara adds. " Convenience [means] it's easy to understand
the investment solutions, and they can get help when
they need it from people who are knowledgeable or tools that
are easy to use, " she says. -Beth Braverman
30 planadviser.com | Winter 2023 | Plan Management
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PLANADVISER - Winter 2023

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