At The Joseph Group, we are blessed to have so many great outside partners who deliver on the promise of great service and execution. One of these partners is Brigette Lafferty, a Retirement Plan Administrator with Rea & Associates. Brigette has over 14 years of experience in this industry and as a grizzled veteran of administration, we wanted to get her take on what happened in 2020 and what’s next for plan sponsors. Kim Kline, our Retirement Plan Services Representative, interviewed Brigette to get her perspective as a third-party retirement plan administrator.
Kim: Brigette, what were the trends you saw most in 2020 in the Retirement Plan industry?
Brigette: COVID impacted a lot of businesses, some for the better and some for the worse. In 2020, we saw some businesses shutting down matches and/or profit-sharing contributions, while others made money hand over fist and were looking for an opportunity to put this money away. I think the three biggest trends I saw with retirement plans in 2020 were:
- There was a big uptick in businesses setting up Cash Balance plans. These plans offer a way to increase Retirement Savings on top of the 401(k) plan.
- Advisors, with the help of administrators, started to be more creative within the 401(k) plan in order to make it work for plan sponsors.
- Plan sponsors using creative ways to save thousands of dollars in payroll taxes. One such example is Prevailing Wage contributions are now going into retirement plans at a higher rate.
Kim: You talked about some of the things you saw in 2020, but what you do envision seeing more of in 2021 and beyond?
Brigette: Most companies are back on their feet and those who either stopped their match or profit sharing are now focusing on taking care of their employees and providing additional benefits. Whether this is beefing up their health insurance or their retirement plan, companies are looking for creative ways to enhance their benefit offerings to employees, both present and future. Something we’re seeing currently in the market is that hiring has become a more difficult process and prospective employees are diving deeper into the benefit offerings of their potential employers. In reaction, employers are reevaluating their benefit packages, especially their retirement plan(s), in an effort to recruit and retain the top talent that can elevate their business to the next level. This is happening in companies from all industries, sizes and locations.
Kim: Switching gears, what’s the number one complaint right now for plan sponsors?
Brigette: Most plan sponsors are wearing a lot of hats right now and trying to juggle operating the business, as well as operating the retirement plan(s). Many have expressed that they’re just overwhelmed with all of the work that goes into operating an effective retirement plan. This was a problem before COVID, but the pandemic really put pressure on plan sponsors with shutdowns or furloughs. Now with the struggles in hiring new employees, it’s become more of an obvious pain point for sponsors. One of the processes we hear about most often is payroll submission. It has to be timely and accurate and this is particularly stressful for those with multiple or frequent payroll schedules. The solution is to find ways to streamline processes or automate certain functions. That can be done by adding services like Payroll Integration. This is a service in which contributions flow directly from the payroll provider to the retirement plan. Many recordkeepers are growing their list of payroll providers that offer a connection to their retirement plan products. There are, of course, other processes that can cause plan sponsors headaches like annual notice requirements and/or 5500 filings and in some cases, those can also be automated. Finding the role of automation in the retirement plan all depends on what each plan sponsor needs versus what keeps them in the office instead of wherever they’d rather be.
Kim: What were some of the biggest issues you found when administering plans in 2020.
Brigette: The 2020 plan year was by far the worst year I’ve seen in terms of payroll deposits being on-time and correct. About 25% of the plans I serve had incorrect or late payroll submissions. Errors varied from putting deposits in for the wrong person to the submission was just forgotten and submitted past the allowable time frame. In a typical year I would estimate that I find payroll errors in less than 10% of plans I serve. This is one of the primary benefits to plan sponsors in automating payroll submissions. You just hit “go” and it’s done! Another issue from 2020 is that executives and business owners are sick of getting refunds for their contributions. Previously, some would find a silver lining and use it towards a vacation, but when there is nowhere to go, it really highlights the frustration, especially for business owners and executives. More and more plan sponsors are taking a hard look at other plan designs, like Safe Harbor as a way to prevent those moving forward.
We appreciate having partners like Brigette, and many others, who provide their insight both as a reflection but also, and perhaps more importantly, as a path forward towards helping plan sponsors operate an effective retirement plan.
Some takeaways that I had from this conversation:
- A well-designed retirement plan is becoming increasingly important to prospective employees and employers are reacting to these changes.
- Automating select functions in the retirement plan is an important change for plan sponsors, which ultimately frees up time to spend operating the business.
- Surrounding the plan with trusted partners to monitor and manage the plan is one of the more impactful decisions a business owner can make.
At The Joseph Group, we have an excellent process in evaluating retirement plans and identifying both areas of strength and areas that, with a little boost, could become a strength. If you find yourself wishing you spent less time on the retirement plan and more on the business OR you would like a second opinion on if your plan is designed to retain and attract talent in this new employment marketplace, give me a call. I’d be happy to sit down and review your plan. Your plan is important and we are happy to help find ways to maximize it.
Written by Matt Kruckenberg, Manager of Retirement Plan Services. Matt can be reached at 614-907-8639 or firstname.lastname@example.org