Pandemic Impact on Retirement Planning: Participants Stay the Course – The 401(k) Specialist


When the CARES Act passed in response to the COVID-fueled economic crisis, the retirement industry worried that its provisions allowing 401k plan participants to raid their accounts would cause a run on plan loans and withdrawals—not to mention lowering their deferral rates or halting contributions altogether.

Thankfully, that hasn’t been the case to date, according to panelists on a timely virtual roundtable discussion hosted by J|Connelly on May 20.

“Retirement planning opportunities and challenges in the age of COVID-19” was the subject of the discussion, featuring moderator Denise Diana, SVP, Enterprise Consulting at Envestnet; Tom Zgainer, Founder and President of Sales at America’s Best 401k; Paul Neuner, Managing Director and Founding Partner of NEXT Retirement Solutions; and John Forlines III, Chief Investment Officer, W.E. Donoghue and Executive in Residence in the Department of Economics at Duke University.

How 401k plan participants have reacted since the crisis began was a repeated theme during the discussion, and those participants have been surprisingly patient, taking more of a “wait-and-see” approach instead of making potentially detrimental moves.

Tom Zgainer

“When we first saw the CARES Act come out, we were like, ‘Aargh, that’s going to open up Pandora’s box and participants are going to go running to more access to cash,’” said America’s Best 401k’s Zgainer.

Noting the 401k provisions of the CARES Act, Zgainer says the cashout-friendly new rules did create a sense of worry for what would participants do. “If your primary source of saving for the future is your 401k plan, that’s the first place you going to look to access some cash,” he added.

Neuner added that the heart of the CARES Act for 401k participants “is this concept of being able to access your retirement balance liquidity quickly in the event that you need it.”

But in his view so far, the impact has been muted.

“We have not seen major changes in deferral rates. There have been some, but they’re modest, both up and down. We have not seen a run on moving dollars to cash. We have not seen massive distributions, nor have we seen a massive uptake in loans,” Neuner said.

In preparing for the event, Zgainer said he reviewed 5,046 401k plans, with a total of 123,693 participants.

“I was very pleased to see that of those 123,693 participants, only 341 have taken a distribution and only 32 took a loan.”

Why so low, given the gravity of the situation?

“I think communication was important,” he said. “We got after this really early to tell people, ‘Don’t run to there, look somewhere else.’”

Call centers for 401k plan administrators were indeed inundated in March and early April with panicked participants seeking advice on what to do and the CARES Act in general, but most ended up holding steady and not accessing funds or making changes to their contribution rates.

“So far, their behavior is solid,” Zgainer said, adding that the worrisome part to him is all the folks who don’t participate in 401k and are near financial destitution after 90 days or so. Where will they turn for funds?

Value of advice gets a bump

Neuner says he knows there’s going to be a change in business models in terms of distribution, particularly of information.

“If you look at it from the plan sponsor’s perspective, I absolutely know that there’s going to be a major change in terms of how plan sponsors value information and what they’re willing to pay for it,” Neuner said. “I think they’re going to be far more pragmatic than in the past for a variety of reasons, and I think participants are going to receive and move on information differently as well.”

As plan sponsors more closely consider the value-adds to what they’re getting or what they’re paying for it, he said he thinks participants are going to respond by being willing to pay more for all the advice.

“Most participants in retirement plans would actually prefer someone else do it for them even if they were confident in doing it,” Neuner said. “I think you’re going to see a move in that regard to where participants are going to be more willing to pay for better service and response.”

Moderator Diana of Envestnet was quick to agree.

“Truly, I think the value of advice and having a trusted adviser is going to be more and more meaningful as Americans start to think differently about risk and reward and how they’re going to achieve what they want to achieve,” she said.

How advice is changing

Helping the typical plan participant avoid sabotaging their retirement either by inaction or making bad choices was a repeated theme throughout the virtual discussion.

Much of it touched on how the way people need to receive retirement planning information, and how it is changing.

John Forlines III

Being a behavioral scientist, Forlines of W.E. Donoghue noted that people only deal with what they see in front of them, read, participate in, etc.

“It’s very difficult for them to think in the long-term and yet that’s where the retirement world sits. We’re all about trying to construct possible futures, economic futures for people, and yet it’s very difficult to get individuals in the now to focus on that,” Forlines said.

“Even in normal times, investors made horrendous mistakes,” he added. “How do you protect investors from doing things to themselves? In this crisis time, it’s even more important.”

Gone are the days of meeting with 20 employees in a conference room to talk about the importance of saving for retirement.

“The days of shepherding everybody into a big room with a stack of paper, donuts, and bagels are long gone. Nobody’s going to speak about their finances amongst their peers,” Zgainer said. “We’ve been saying that since 2016, and it seems very prescient today because we’re certainly not going to be gathering in those rooms any time soon.”

Today, Zgainer noted one-to-one “advice on demand” is how his company prefers to provide advice to participants.

“Without that one-to-one communication, we would have seen people making rash decisions that they’re not doing now, purely because they had the right conversations,” he concluded. “In this one-to-one time that will last 15 to 20 minutes, they will open up about their finances. We help them create their portfolio, and now they’re on their way… there’s a fiduciary in their pocket who is looking out for their best interest.”

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