Retirement Plan FOCUS Bulletin - First Quarter 2021
iJoin – Digital Enrollment and Retirement Planning Tool
Our team is pleased to announce that we are in the process of launching iJoin, a digital enrollment platform for new participants and a retirement planning tool for active participants.
As a competitive employer, you know your retirement plan is more than a line item benefit. It’s an important element in your strategy to attract and retain top talent. It also creates an opportunity to foster a critical long-term savings path for your employees’ retirement. With iJoin, your employees will enjoy a uniquely personalized, goal-based experience that helps them take steps toward financial independence.
iJoin offers a better enrollment, re‑enrollment, and engagement experience that answers the three questions most people have about saving for retirement:
- How much money will I need at retirement?
- How do I know if I’m saving enough?
- How can I close the gap and reach my goal?
This feature is offered at no cost to all clients and participants.
Active participants will be presented with a widget on the participant dashboard that provides an estimated monthly “paycheck” based on their current account balance, contribution rate, salary, and investment allocation. Participants are then able to further explore this calculation by updating information, making adjustments to contributions, and/or changing their retirement age.
We anticipate launching this feature to the majority of our clients in late March or early April.
Health Savings Accounts as a Retirement Vehicle
With rising insurance and medical costs, high-deductible insurance plans have increased greatly in popularity. Along with the high-deductible plans, the popularity of health savings accounts (HSAs) has increased as well. These accounts allow for participants in high-deductible plans to save for medical expenses on a tax-free basis. In fact, HSAs are the only savings vehicle that is considered “triple tax free.” In these accounts, the contributions are pre-tax and earnings AND withdrawals are all tax free – provided that the withdrawals are used for covered medical expenses (even past medical expenses).
It’s the triple-tax-free status of these accounts that makes them so appealing to those who are astute when it comes to saving for retirement. In fact, many argue that, contribution limits aside, health savings accounts are a better vehicle than 401(k) plans. So how should one approach their retirement savings utilizing HSAs? Experts agree on the following tactics:
1. Contribute enough to your 401(k) plan to ensure that you will receive the maximum employer matching contributions offered by the plan.
2. Contribute the maximum amount possible on an annual basis to a health savings account.
3. If you are still able to save more, increase your contributions to your 401(k) plan.
Fulton Bank and FFA offer a full-service health savings account solution that allows for account holders to readily manage their health expenses, but also direct their long-term health savings accounts into mutual funds and manage those investments through our website
If you offer a high-deductible plan and wish to have a more unified approach to HSAs, please contact your Retirement Services Relationship Manager.
Securing a Strong Retirement Act of 2020
It’s no secret that the COVID-19 pandemic has had a significant negative effect on many different industries, resulting in employee layoffs and terminations throughout 2020. Typically, anytime an employer reduces their covered employees by more than 20%, their retirement plan is considered to have experienced a partial plan termination. In those instances where a partial plan termination is deemed, all of the participants affected by the staff reductions become automatically 100% vested in any employer monies associated with their account. This would have minimal effect on those plans that have no employer contributions or plans where all employer monies are 100% vested. But it can have a significant impact on those plans that do have unvested employer monies.
The standard process to determine if a plan has experienced a partial plan termination is to compare the number of covered employees from a plan year end date to the preceding plan year end date – which means that the majority of employers must compare their 12/31 employees from one year to the same date the prior year. For example, a plan that had 100 covered employees on 12/31/2019 and only 75 covered employees on 12/31/2020 would typically have been deemed to have a partial plan termination due to the 25% reduction in covered employees.
The Consolidated Appropriations Act addresses the potential hardship that COVID-19-related layoffs could have on employers and is focused on helping employers avoid this issue for those employers able to re-employ their workforce. Simply put, an employer can use the dates of March 31, 2020, and March 31, 2021, to compare the number of covered employees. If the reduction in covered employees does not exceed 20% of the workforce, the plan will not be deemed to have a partial plan termination. So, using our previous example – it seemed as though the employer was deemed as having a partial plan termination. However, if this same employer had 100 employees on 3/31/20 and was back up to 81 employees by 3/31/21 – the plan will NOT be deemed to have a partial plan termination. In this example, the fact that six employees were hired back in the 12/31/20 to 3/31/21 time span allowed this employer to avoid the effects of a partial plan termination.
Additionally, the new hires do not have to be the same employees who were terminated. However, the new employees DO have to be covered by the plan on 3/31/21. So, this wrinkle will not work for any employers that have anything but a brief eligibility period.
As you can see, this aspect of the act is not intended to give employers a free pass regarding partial plan terminations. It does, however, provide relief to those employers that are making a bona fide attempt at rehiring and restaffing their teams as the circumstances regarding the current pandemic hopefully improve. However, some critics may argue that employers need longer than 3/31/21 to hire back employees. Although there is currently no indication that there will be any additional changes or relief applied (perhaps extending the date to 6/30/21), I personally don’t think it’s outside the realm of possibilities if the effects of the pandemic do not lessen significantly by the end of March.
Finally, an interesting side note worth sharing with you: If a plan is deemed a partial plan termination and a participant is deemed vested at 100%, that participant will remain 100% vested even after they are hired back. In theory, an employer could have some active employees vested at 100% while longer tenured employees are still subject to a vesting schedule.
This recent article from BenefitsPro, shines a spotlight on how to learn from the mistakes that others have made when it comes to retirement savings. As advocates for your participants and with a mission to help them, we found that a number of lessons in the article resonated with us. It’s our collective mission to prepare your participants for retirement, and helping participants avoid these pitfalls is essential.