December 11, 2023

Hi everyone, my name is Ben Ritenour, I’m the director at The Walz Group. We’re meeting today with Janel Cross from Align, an independent retirement support specialist. It’s the middle of August, and we’re here to talk about 401K plans. The driver behind this is Janel was at our office a few weeks ago talking to us about it. It became abundantly clear that the 401K world, which we might think is standard and plain Jane with nothing really happening, had a lot going on at the beginning of 2023. There are a lot of things to consider, so we asked her to come and tell us a little bit about it. Janel, can you tell us a little bit about yourself?

Janel: Excellent, thanks for that intro, Ben. It was a pleasure to be on-site with The Walz Group. I enjoy the series that you’ve put together. I think the world is increasingly complex, so opportunities that we have to curate and share information make life easier for all of us. Thanks for the good work that you’re doing. I feel privileged to be your guest today. I’m Janel Cross; our firm is Align Advisors. We specialize in workplace retirement plans, 401ks, and 403bs. I’ve been doing this for quite a while. I joined the industry just a couple of weeks before the 9/11 terror attacks. I started my own firm a couple of months before the financial crisis, and I joined with my partner Jim Werst about a year before COVID. Faced a lot of challenges; some things stay the same, but some things are changing significantly in the world of retirement plans as well.

Ben: As we dive into it, where are we? You mentioned it’s complex; you mentioned a lot of things are complex. My guess is you’re going to tell us a little bit about the complexity of the retirement plan, the 401K plan world.

Janel: Yes, so I think the complexity comes in two forms. First, we’re seeing more and more regulation around retirement plans. The good news is, while it introduces more complexity, I think it introduces more opportunity. We’re seeing more options, more flexibility. The 401K plan is moving beyond a retirement savings vehicle and becoming a platform to address a variety of financial needs for today’s workforce. At the same time, there’s a desire across life, in general, for things to be customized and curated for individual needs. So how do employers do that with a single workplace retirement plan and very diverse needs and preferences among their workforce?

Ben: Yeah, no doubt that makes sense. I’m sure you’re going to get into that a little bit more as we go along. Before we go into that, what’s an interesting statistic relating to the 401K plan world?

Janel: Late 2022, on December 29th, at the 11th Hour, we had a big package of retirement plan regulation called Secure 2.0. It brings 90 new provisions to the retirement plan space, all designed to help Americans save in one form or another. This next layer of new regulations, new opportunities, is behind an interesting survey I read from Fidelity Investments. Fidelity historically worked directly with many employers. In their survey, they found that 94% of plan sponsors, which is an employer who sponsors a workplace retirement plan, were working with an advisor. This is a change from the beginning of my career, where probably still the majority of plans didn’t work with advisors. This increasing complexity and new opportunities are driving more employers to say we need to engage with someone who’s a specialist in this space.

From the employee perspective, the demand is not just for retirement plans; it used to be health insurance and a retirement plan. Now they expect their employer to offer health insurance and a retirement plan. They’re looking for things like Financial Wellness. PWC found that the vast majority of employees expect their employer to help them with their broader Financial Wellness. TIAA, a provider heavily engaged in the nonprofit space, surveyed participants. 65% of Gen Zers and 61% of Millennials said it was their employer’s responsibility to assist them with their overall financial well-being.

Ben: I guess they didn’t survey the employers to get their perspective.

Janel: Correct.  I think that combined with how challenging the talent market is putting employers in a tough spot. We’ve got a lot of regulation, a lot of opportunity, and lofty expectations from our talent.

Ben: And maybe unspoken expectations as well. Employers’ benefit would be to proactively address those rather than finding out after the fact that they aren’t meeting expectations.

Janel: That’s exactly right.  In fact, we work with a lot of manufacturers in the manufacturing space. It’s been tough to procure talent for a long time, even harder now. It’s relatively easy for an employee to move from one employer to the next. We’ve heard horror stories of employees quitting their job to cash out their 401K and get a new job tomorrow. The 401K and this conversation around general financial well-being are more part of the talent recruiting and retaining dialogue than ever.

Ben: It was a challenge before and COVID has made that even more of a challenge.  It sounds like there’s more opportunities out there to try and engage with that challenge, but having the expertise to do that, know what those opportunities are, isn’t the easiest.

Janel: Correct. So, here’s an example.  Secure 2.0 has introduced some features and opportunities for plans sponsors to consider around things like lake of emergency savings.  Or the challenges of  those members of your workforce who are trying to pay student loan debt and also save for retirement and put money into their HSA.  All of these competing demands for our dollars.  If an employer is not aware those new opportunities are out there they may be missing the chance to meet needs and create that custom for me experience their employees are looking for.

Ben: That makes sense.  Is there anything else that you would say rises to the level as a challenge for employers as they try to address this?  And, maybe the counter question is, how are you seeing employers successfully address it and overcome that challenge?

Janel: I think the employers who are rising to the challenge are taking a look at their plan design.  They’re going back to the drawing board.  They’re not settling for the old standard, which was “we want to make sure our fees are low, our funds are good, and our fiduciary i’s are dotted and t’s are crossed.”  Now we’re looking at what improvements can we make to the plan. 

The other thing I think that’s interesting is that employers are acknowledging is that thanks to the opportunity to work remotely, your talent competitors are no longer just local.  So, we’re doing a lot of work with employers who are taking a look at plan design for national competitors.  We’re seeing faster eligibility to join the plan, more generosity in employer match, and faster vesting schedules.  Employers are rising to the challenge and designing their program to be an employer of choice and compete in the talent marketplace.

Ben: It sounds like when you’re talking about increased focus on getting people in the door and probably still focusing on trying to keep them in the door but acknowledging they’ve got to get them in the door before they can start addressing keeping them in the door.

Janel: Correct. Once they’re there, the second thing we see many employers focusing on, and I found this interesting, is that employers sit at the top of the trust chain for many people. That employee is now in my workforce. They are inevitably going to wonder how to put a kid through college, they’re going to have a loss of a loved one, a family member diagnosed with an illness, they’re going to face financial crises, not to mention national or global pandemics. So, how are we coming alongside that employee in their moment of crisis and building on that trust to communicate to them that we see them as a member of our workforce but also as a person with a life outside of work? Focusing on the quality of the plan design and the level of support we’re providing to our employees is how employers step up to this challenge.

Ben: In my experience, too, that’s how you get an employee for life is when you step up to those challenges because then that concept of trust becomes trust, “These people really do care about me.” It’s not just a face that they’re putting on or pretending to care about me, and then their actions say something different. Their actions show that care, and we all want to work with and for people that care for us.

Janel: Yes, exactly right. I read something recently that said pay raises, bonuses, even profit-sharing contributions create a positive experience for the employee for a short period of time. But, our experience in a supportive culture environment, liking coming to work every day, reinforces our employment decision day after day. I really do believe that employees are sitting in the decision-maker seat, and as employers, we just want to leave no stone unturned to make sure we’re doing all we can to get them and keep them in our workplaces.

Ben: Those are great points.  As we talk about changes that came through Secure 2.0, what are some that you see employers really considering, or what are some that you think really have substance to them? Keeping this in mind in the context that these are all things that you can incorporate into the plan; Secure 2.0 gave us more options, not always necessarily more mandates. We’ve got some things to play with, but what are some of those ones that you think are more substantial?

Janel: There are some really neat opportunities in Secure 2.0. There’s also incredibly complicated execution of those opportunities. I caveat all of this with what the regulation allows is not necessarily what the industry is ready to deliver. That underscores the importance of an open, ongoing dialogue with your advisor partner. There are things like building an emergency savings sidecar right inside of the 401K. We know that automatic enrollment has worked; out of sight, out of mind makes us do the things we know we should be doing. Can we do that with an emergency savings account right inside of our 401K? Similarly, there are options now for an employer to provide a matching contribution for employees who aren’t contributing because they’re paying down student loan debt. Lots of creativity and lots of flexibility. We’ll have to continue to navigate what recordkeeper partners are capable of offering and responding to regulatory changes and further clarification of this huge package of regulation.

Ben: I’m sure some of the things potentially keep you up at night as you try to think about how do we navigate these? How do we make sure that this concept is executed well within the plan?

Janel: Correct, absolutely.

Ben: Are there any things that maybe we haven’t touched on or that you think would be important for people to consider?

Janel: I think just acknowledging that we are in a state of change. If there’s a level of comfort with your plan, just checking that there’s not something you haven’t yet known is possible. Questioning, could you be getting more? Could you be providing more? Can your vendors help you support your employees more? Asking those questions and finding out what the next level is, what the untapped opportunities are within your plan.

Ben: That sounds great. Well, I appreciate it. Thank you so much for that.  Thank you for your time. I think you could have done this without me, but appreciate all the comments you had and the thoughtful advice you gave.

Janel: Well, this is terrific. Thanks for having me.