Pandemic has DC sponsors holding off on plan upgrades

The coronavirus has thwarted defined contribution executives efforts this year to improve plan design, offer new products and take other steps to help participants save more for retirement.

Aside from suspending or reducing employer matches, sponsors aren't going backward in their plan management. However, they aren't charging ahead as far and as fast as they had expected when they first prepared for 2020.

"Their plans have been upended for sure," said Mike Volo, senior partner for Cammack Retirement Group, Wellesley, Mass., noting that many sponsors have deferred initiatives, citing the economic damage caused by the coronavirus. "Any plan design changes have been pretty much put on hold."

Adding auto features, adding a Roth plan and launching RFPs for record keepers are among the projects that industry members said won't happen this year because employers are scrambling to cope with financial stress.

"In general, they are doing less with less," said DC plan consultant Martin Schmidt, principal at MAS Advisors, Chicago. "They say they will do what they need to do to meet their day-to-day fiduciary duties, but they are not taking on more than they have to."

Among his clients, two suspended the employer match and one put off adding auto escalation and a Roth plan. Another client decided to delay integrating the plan of an acquired company with the client's plan. The client didn't want to impose a three-week blackout period during a plan merger that could have unsettled employees in the acquired plan, he said.

Other clients deferred action on reviewing the profit-sharing formula, enhancing the match or relaxing the vesting requirements.

"If something wasn't broken right now, there is no need to deal with it until things calm down," Mr. Schmidt said.

Cammack's Mr. Volo, who specializes in 403(b) plans, said "probably" 40 colleges and universities "have reduced or suspended the match or are in the process of doing it."

Some clients are reviewing their target-date funds because these investments "didn't provide the downside protection that they expected," said Mr. Volo, referring to the fixed-income components. "Investment committees are having a more in-depth discussion about risk tolerance."

Most clients "are taking a wait-and-see attitude to see what the June 30 (quarter) data shows," he added.

When clients in 2019 planned for 2020, some had plan design changes in mind, such as adding auto enrollment or increasing the employer match, Mr. Volo said. "Plan sponsors who may have spent time and effort communicating changes to their employer contribution and adopting the CARES Act loan and withdrawal provisions are hitting the pause button on plans made pre-pandemic," he said.

Wait and see is a common refrain among clients at Rocaton Investment Advisors LLC, Norwalk, Conn., said Jeri Savage, a principal. Clients are proceeding "one quarter at a time," she said.

However, "the momentum for larger projects hasn't gone away," said Ms. Savage, citing a retirement income strategy as an example. "These are long-term projects. They just may take longer."

DC consultant James Modelski said clients who had been contemplating a due diligence review of their record keeper are postponing action until next year, but clients who are midway through these reviews will continue their efforts.

Larger plans "haven't faced any delays" in issuing RFPs, but small and midsize plans aren't moving as quickly, said Mr. Modelski, partner and senior consultant at DiMeo Schneider & Associates LLC, Chicago.

One topic that has taken a back seat to the coronavirus and the implementation of the Coronavirus Aid, Relief, and Economic Security Act is retirement income, he said. Although the December passage of the SECURE Act prompted greater interest about in-plan insurance options such as annuities, "there's been no action," said Mr. Modelski, referring to the Setting Every Community Up for Retirement Enhancement Act of 2019.

"There's been little or no talk about retirement income," he added. "The focus has been on the coronavirus and the CARES Act."

When the SECURE Act was enacted in December, "people were excited" about "how it could improve the retirement system," said Toni Brown, San Francisco-based head of retirement strategy for Capital Group Cos. Inc. "COVID-19 and the CARES Act seemed to erase the SECURE Act."

This law provided a safe harbor to sponsors against liability if they hired an insurer to guarantee an in-plan annuity only to have the insurer fail to deliver as promised. Sponsors are protected if they receive "written representations" from an insurer affirming its financial health and meeting reserve requirements in states where it conducts business. Sponsors aren't required to hire the lowest-cost provider.

"Retirement income is not high on the list for sponsors now, but they are still talking about it," Ms. Brown said. Since March, sponsors have been dealing with "whatever urgent situation that was right in front of them at the time."

Despite plan executives' scrambling to meet immediate needs, "now is a good time to see what their plan will be in the long run," she added. "Think about it now to ensure success later."

The coronavirus has prompted sponsors to think more short term, said Amy Reynolds, Richmond, Va.-based partner in the wealth consulting business at Mercer. Promoting long-term savings "can take somewhat of a back seat" to addressing participants' more immediate needs.

Pre-coronavirus, sponsors had been encouraging participants to save more for retirement. "Now, realistically they are encouraging more saving for the short term," she said. "Sponsors are redeploying some of their spending" to help participants with emergency savings.

Sponsors continue to focus on fiduciary duties such as reviewing plan governance policies, monitoring record keepers and assessing their investment lineups, Ms. Reynolds said. In a post-coronavirus world, they will put more emphasis on retirement income, she said.

"The pandemic is a reminder that too many Americans are living too close to the edge," said Yanela Frias, president of Prudential Retirement, Newark, N.J. Prudential offers a program that allows participants, through payroll deduction, to place some of their retirement contributions in an emergency fund on an after-tax basis.

By year-end 2019, the program, which started in July 2018, had 18 clients. Four more have since signed on. "We believe sponsors are becoming more interested in establishing a plan that helps manage day-to-day finances."

Although Prudential representatives have had many conversations with clients about the employer match, "not too many have pulled the trigger" to suspend or reduce this benefit, she said. If sponsors take action, Prudential counsels them on reminding participants that just because the match is decreasing, they shouldn't decrease contributions.

The coronavirus has required Prudential to adjust the way it communicates with participants. "We have adapted to virtual retirement counseling" either on a one-to-one basis or in group meetings, she said.

At John Hancock Retirement Plan Services LLC, Boston, the sales teams and relationship managers have made adjustments, too, said CEO Patrick Murphy. Prior to the pandemic, "maybe 10%" of all deals with clients were closed online, he said. "Now it's almost 100%."

In a response to market volatility, some clients also are adding more conservative investment options, he said.

Also, John Hancock offers education tools and information about student aid including scholarships, grants, student loan options and forecasting financial aid.

And if they need short-term financial help, participants can create an account outside of their retirement account to help them build emergency savings and help cover unexpected expenses. The goal also is to avoid taking a loan or withdrawal from their retirement savings account.