Keeping Assets In Plan: Rocket Science?



Most plan sponsors want the assets of retired workers to stay in the plan, but why would workers want to keep their assets with a former employer? Experts say it’s not rocket science: just give retirees a reason. Though doing so does require some effort on the part of plan sponsors, it’s quite possible to serve retired workers.


Basic Tools

At Plan Sponsor, retirement finance expert Bill Ryan points out that typically, plans already have the basic tools needed to serve retirees, such as systematic withdrawal arrangements and appropriate investment options: “The retirement tier is an overwhelming topic that doesn’t have to be overwhelming….We are closer to the answer than further away. Most plans have the building blocks for a retirement income tier; they just have to build on them.” Noting that “workplace” retirement plans may need a name change, Beth Braverman reports that to keep retirees in the plan, both the right accumulation and decumulation vehicles are essential:


For a more robust retirement tier, experts say plan sponsors should focus on communicating with retired participants about how to make the most of existing offerings—and take the time to thoughtfully consider whether there are other products available that would strengthen their offerings to these participants….When it comes to investments for retirees, some plan sponsors are re-evaluating target-date funds to make sure they have a glide path that helps participants move through—rather than to—retirement, or the ability to switch to a managed account when participants reach retirement age, says Scott Mayland, an ERISA fiduciary and retirement services counsel at Groom Law Group. The Setting Every Community Up for Retirement Act of 2019 and the SECURE 2.0 Act of 2022 eased some restrictions on in-plan annuities. Those regulatory changes, along with higher interest rates, have more plan sponsors also looking at lifetime income products to enhance their retirement tier offerings.


Before making any shifts to the plan, it’s always critical for sponsors to “evaluate them with a fiduciary’s eye, making sure they understand all the features and the costs.” It’s also important for plan sponsors to stay on top of evolving regulations. Some of the recent shifts, such as the push back on required minimum distributions (from age 73 now to age 75 in 2033), actually provide  incentives for offering annuities. Additionally, as Mayland points out: “There’s always a challenge with the coordination of RMD rules when an individual has multiple accounts at different financial institutions….SECURE 2.0 lessens the burden somewhat in terms of coordinating those accounts….That can make it a little easier to offer annuity options either in or outside of the plan.”


Avoid Missing Participants

As sponsors explore ways to keep retired workers and their assets in the company plan, communication efforts must be correspondingly stepped up. The Department of Labor continues to emphasize proactive effort to curtail the challenges associated with missing participants. When building out a retirement tier, include a strategy for staying in contact with retirees and “making sure they remain engaged with the plan,” though as Jonathan Zimmerman points out, this demands an investment of time and money:


The Labor Department has focused heavily on missing participants in the past seven or eight years, so fiduciaries are under a lot of pressure to make sure everyone in the plan gets paid….It requires effort and expense, and that adds up over time…..If you are offering additional products and changing the plan to offer those products, you’d have the same obligation to communicate those changes to former employees….


While considering communication and engagement strategies, it may be helpful to keep in mind that plan administrative expenses related “to the day-to-day operation of the plan” may be paid using the ERISA Budget Account. Examples of allowable expenses include: calculating benefits, communicating plan information to participants and plan testing, Because a plan sponsor cannot use the ERISA Account to “pay for its obligations,” payment of employer contributions is not permitted.


Important To Know

The Department of Labor’s Employee Benefits Administration (EBSA) regularly pursues violations of ERISA, recovering funds for retirement plan participants. Civil corrections, litigation and criminal indictments are all possibilities for plan fiduciaries under the high standards of ERISA. A common—and dangerous—oversight on the part of plan sponsors overall is the assumption that contracting with service providers eliminates the sponsor’s liability for errors, which is simply not true. Indeed, because sponsoring company benefit plans comes inherent with 3(16) fiduciary obligations, plan sponsors can be held personally liable for errors and this is a risk that can never be fully eliminated. Although it is true that “ERISA allows plan sponsors to outsource some of their 3(16) fiduciary responsibilities by formally appointing another entity to assume some of their plans’ administrative functions,” the plan sponsor always retains fiduciary responsibilities, such as the decisions made in the selection and monitoring of third party services providers. Experts also remind us “Not all fiduciary services are created equal. In today’s increasingly litigious environment, it is imperative for plan sponsors to be educated consumers of ERISA fiduciary services” and follow a prudent process for outsourcing 3(16) responsibilities.


Colonial Surety is here to help plan sponsors manage their risks with affordable fiduciary liability insurance. Armed with our coverage, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000. Uniquely, Colonial even includes Cyber Liability Insurance, locks in multi-year rates and offers installation payments. Conveniently, our Fiduciary With Cyber liability package is now available with a one year commitment. Protect yourself and your business, for a few dollars a day, now:


Fiduciary With Cyber Liability Insurance Right Here.


Pension plan professional? We’re here to help you with your plan sponsor clients—and we’ve got you covered too. From  Errors and Omissions Insurance to Fiduciary Liability Insurance, Employment Practices Liability Insurance–and more, we’re HERE with the coverages pension professionals need to keep the business going—and growing.


Insurance for Pension Professionals Right Here.


Colonial Surety Company is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country. Serving customers since 1930, we are the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. We help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time.