NAFCU Services Blog

By Rich Rausser, SVP of Client Services, Pentegra

In Part 1 of this series, we introduced ways for your credit union to implement a progressive plan design that enables retirement readiness. Plan design decisions are elemental in helping people achieve positive outcomes. So in this post, we’ve outlined 4 more ways to refine your plan, foresee and prevent challenges, and ultimately empower your plan participants.

1.     Preserve Savings by Limiting Plan Leakage

Early distributions from retirement plans for uses other than as retirement income are more commonly known as plan “leakage.”  Most plans allow participants to access their accounts using withdrawal and loan provisions. Overusing loans and withdrawals creates a perpetual use of plan assets to meet day-to-day spending needs.

Action Items for Plan Sponsors

• Limit the number of total loans outstanding at any given time—ideally to one or two at most. Doing so limits 401(k) asset outflows due to the perpetual use of plan assets to meet day-to-day spending needs.

2.      Provide a Path for Decumulation With Retirement Income Options

How do you help participants transition from the accumulation phase to the decumulation phase? Many of the same factors that shape savings decisions will also shape how retirees spend their retirement savings. For many employees, this can be overwhelming and often confusing. Often they have savings from many different sources—employer-sponsored retirement plans, such as 401(k) or pension plans, plus IRAs and Social Security benefits. These income sources will likely offer different methods of distribution that they need to choose from.

As employees consider how to maximize retirement income, they may be concerned about how to balance spending too much in the early years of retirement and running out of savings, or being too frugal and leaving excess savings behind. Most of us face real risks related to inflation, longevity and market volatility. A primary concern for many will be how to “pensionize” their retirement savings. Retirement income options offer participants a solution.

Action Items for Plan Sponsors

• Retirement income options, such as lifetime income annuities, provide a way to help participants maximize retirement benefits to provide comfort and security throughout retirement with a guaranteed monthly benefit payment based on accumulated retirement benefits.
• Through the retirement income options, participants can convert retirement plan assets into a reliable income stream or paycheck for life by purchasing a lifetime income annuity. Consider these benefits: 
  • Provide guaranteed lifetime income and predictable benefit
  • Reduce investment risk (benefit is not subject to market fluctuations)
  • Eliminate the worry of how assets are invested
  • Can build in inflation increases
  • Can provide for spouse or beneficiary income

3.     Expand Retirement Coverage

Retirement plans play a vital role in attracting and retaining quality employees. They represent an important and essential part of an overall compensation package. Many small businesses have a strong desire to offer a 401(k) or other retirement plan but face considerable hurdles in terms of cost, expertise, and dedicating the necessary time to run the plan properly. Multiple Employer Plans (MEPs) are one way to eliminate many of these hurdles for plan sponsors.

A Multiple Employer Plan, or “MEP” is a type of retirement plan structure in which employers join together to pool their purchasing power within a single plan. MEPs make it easy and cost-effective for any size organization to offer a high-quality institutional level retirement plan and ease the burdens that come with sponsoring a retirement plan. MEPs bring together a comprehensive array of plan services, fiduciary support and investment platforms to offer plan sponsors a seamless retirement plan solution.

A MEP is a powerful tool that can be used to provide broader retirement coverage. MEPs can be “open” or “closed.” Open MEPs permit unrelated employers to participate. Closed MEPs are for groups of employers that share a common nexus.

Action Items for Plan Sponsors

• Consider a MEP if it is the right fit for your business. MEPs may be an attractive alternative to offering a single employer plan in the right circumstances.

4.      Outsource Fiduciary Responsibility

Retirement plans are complicated. Plan sponsors may not have—or want—the knowledge of how they work. Despite that, sponsors are fiduciaries. As fiduciaries, they are legally responsible for administering their plans. Without the knowledge or expertise of how the details work, mistakes can happen, and there are very real and significant consequences.

That’s why it is so important to hire an expert and to outsource fiduciary responsibilities—especially administrative responsibilities. The right fiduciary partner can assume these responsibilities and help to eliminate the risk of failing to meet deadlines or doing things incorrectly.

Outsourcing fiduciary responsibility, and in particular 3(16) administrative responsibilities, offers a simple solution that can minimize risk and reduce administrative burdens for plan sponsors. Because the 3(16) administrator is responsible for managing the day-to-day operation of the plan, outsourcing the fiduciary responsibilities associated with this role transfers these responsibilities from the plan sponsor to the named 3(16) Administrative Fiduciary.

Action Items for Plan Sponsors

• A 3(16) Administrator helps to eliminate the risk of failing to meet deadlines or doing things incorrectly by assuming key retirement plan responsibilities, transferring these responsibilities from the plan sponsor to the fiduciary. This helps by not only eliminating work, but also minimizing the risk and responsibility for doing the work. Sponsors have the comfort of knowing that their plan is being administered so that it’s always compliant and managed with participants’ best interests in mind. What was a long list of retirement plan responsibilities becomes only a few. Some benefits to consider: 
  • Save time and money
  • Take work off their desk by eliminating complex responsibilities
  • Reduce compliance burdens
  • Minimize risk & liability
  • Improve plan outcomes

By taking advantage of the plan design features we've outlined here, you'll be setting up both participants and sponsors for long-term success.