Coronavirus, SECURE Act key topics at P&I's DC East conference

Financial security dominated discussions at the recent Pensions & Investments East Coast Defined Contribution Conference as speakers said the SECURE Act can make DC participants' retirement more secure while COVID-19 will make it less secure.

The advance in security will take time to achieve because the Department of Labor will write a series of regulations covering such areas as in-plan annuities, pooled employer plans and disclosure statements for participants, said Preston Rutledge, the agency's assistant secretary for the Employee Benefits Security Administration, during a keynote speech Monday.

The challenge to security, however, may happen uncomfortably quickly because the coronavirus outbreak has substantially increased the risk of recession, said Megan Greene, a Harvard University economist, at the conference held March 8-10 in Orlando, Fla. She delivered her remarks two days before the Dow Jones Industrial Average dropped into bear market territory — falling 20% below its February high.

If the global supply shortage caused by the virus leads to companies failing, it could lead to a "demand shock," exacerbating the financial turmoil roiling the markets, Ms. Green said Monday in a keynote speech.

Already there are indications that the "supply shock" is turning into a global demand shock, she said. One is that inflation expectations have dropped sharply over the past month.

"Rate cuts aren't that effective in the face of this kind of shock," said Ms. Greene, noting that the Federal Reserve and central banks worldwide are limited in what they can do. "No one has that much room to cut rates."

Fiscal policy, rather than monetary policy, can play a much bigger role, but "politicians have to agree on what measures to implement," she said. Any fiscal stimulus will need to be carefully tailored to make sure it goes to businesses that need credit and workers who are losing their jobs, she added.

The heightened risk of recession, however, doesn't mean retirement savers "need to liquidate and get out of the market," she said. Instead they need to "invest defensively" in industries such as utilities and health care, Ms. Greene said.

Mr. Rutledge delivered his comments via video because the coronavirus outbreak prompted the federal government to restrict most employee travel.

"Although the law contains no specific regulatory direction to EBSA, we expect some stakeholders may request some regulations or guidance," said Mr. Rutledge, referring to the law's annuity safe harbor provisions. He didn't identify any examples that might require rules or guidance nor did he provide a timetable. The law took effect Jan. 1.

He expressed a greater urgency for regulations affecting pooled employer plans. "We believe there are important rules that need to be issued this year to facilitate establishments of the new pooled employer plans," he said.

Although the SECURE Act requires registration of these new plans with the Labor Department, it doesn't require guidance on prohibited transactions, he said. "It does seem to us that some prohibited transactions will be helpful," he said.

"We have held stakeholder meetings on this subject," said Mr. Rutledge, adding that he encouraged attendees at the DC conference to send in suggestions for these plans and other SECURE Act issues.

The pooled employer plans offer the opportunity to "lower administrative burdens on employers and increase the scale of plans," he said. Hopefully, he said, the plans can lead to more people being covered, better investment returns and lower fees.

The annuity safe harbor provisions of the SECURE Act are important to EBSA as the emphasis on retirement saving moves to defined contribution plans from defined benefit plans, he said.

"Employees are not only increasingly responsible for the adequacy of their savings at the time of retirement but also for insuring that their savings last through their retirement years and, in many cases, the remaining lifetimes of their spouses and dependents," he said.

The SECURE Act safe harbor provisions offer greater protection to sponsors in choosing an insurer to guarantee an in-plan annuity. The law provides, among other things, the recognition that sponsors don't have to choose the lowest cost product. They are allowed to conclude that an insurer is financially capable of meeting its obligations by requiring the insurer to provide specific written affirmation.

The SECURE Act gives the Labor Department "clear direction" in its efforts to enhance retirement security opportunities for DC participants, he added.

The annuity provisions in the SECURE Act establish a "safer safe harbor" for sponsors, said Marla J. Kreindler, a partner at Morgan Lewis & Bockius LLP, Chicago. Although the law protects fiduciaries from liability for participant losses, fiduciaries still must review the benefits and costs of annuity products, she said during a panel discussion titled, "Can You Insure Your Income?"

The annuity provisions in the SECURE Act are a "big deal" that clears a path for greater use of in-plan annuities and development of new annuity products, said Kevin Walsh, a principal at Groom Law Group, Washington, during a panel discussion called, "What Plan Sponsors Need To Know About The SECURE Act."

He also suggested that the law could provide a "small step" for companies to develop other new products for defined contribution plans, most notably non-liquid alternative investments.

Mr. Walsh said the law's provision for allowing portability of an in-plan annuity from one plan to another could also increase sponsors' willingness to offer these options. The law addressed a concern of sponsors and participants who have worried about in-plan annuities that couldn't be transferred if a participant moved to another employer with a different record-keeping platform or if the sponsor chose a new record keeper.

The portability and annuity provisions of the SECURE Act were hailed by Daniel Notto, managing director and ERISA strategist at J.P. Morgan Asset Management, New York, who said that "it's going to take a while for the plan sponsor community to digest this."

It's possible some employers that now offer DC plans might decide to join a pooled employer plan as a way to cut retirement costs, he said "This isn't just for start-ups."

Among the other features at the DC East Conference was a discussion of cybersecurity. An informal poll of attendees showed that 25% of their employers had experienced a data breach, and 45% had been hit by an unauthorized withdrawal.

Plan sponsors need to investigate every step of the distribution process to protect participants against cyberfraud, said Margaret Haering, counsel to Connecticut's office of the state comptroller.

"People who are attacking your plans are relentless and you need to be relentless, too," she said during a panel discussion, "Protecting Retirement Plans Against Cybersecurity Risk."

Ms. Haering advised plan sponsors to look at what types of authentication are required and the "most likely parts where somebody could create an account takeover."

Connecticut suffered a cyberbreach in 2016 when several participants in the state's defined contribution plans had money taken from their accounts. "We were able to stop the activity, but we learned some very hard lessons," Ms. Haering said.

Other panelists agreed that everyone has a role to play in guarding against cybercriminals. "When we onboard a new hire, we talk to them about the importance of protecting this data," said Nick Nyhus, vice president in human resources and information technology for the University of Minnesota Physician's defined contribution plan. "There isn't one person who is totally responsible. We all are."

Sean McCloskey, branch chief in the Department of Homeland Security's national protection and programs directorate office of cyber security & communications, agreed, saying that cybersecurity was once considered an IT problem. "It's not an IT problem anymore. This is an organizational issue. We all have a role in cybersecurity."

Humor is one of the best ways to engage participants, many speakers said at the conference.

When talking about retirement, most employees "glaze over" unless they're over 50, said William Caldwell, manager of benefits and compensation at Metropolitan Washington Airports Authority, during a panel on financial wellness solutions.

To overcome this communications challenge, Mr. Caldwell often uses humor and funny videos to grab employees' attention, or as he put it "get the hook into them." For example, when he asked employees if they would like a new Toyota during recent talk on financial wellness, he pulled out little toy Yodas from "Star Wars," a move that got people to laugh — and listen, he said.

Personalized messages and simplified language were other tools plan sponsors employed to drive engagement and boost retirement savings. Too often, plan sponsors communicate their plans to the entire workforce not "appreciating that the level of understanding is very different across employees," said Michael Bourcier, corporate benefits director of financial wellness at Lockheed Martin Corp.

To address this issue, Lockheed Martin now provides participants with personalized financial wellness statements, Mr. Bourcier said during a panel on removing roadblocks in retirement savings. The statement is helpful, he said, because it "speaks in very easy terms."