“It’s been a rough year” — perhaps the understatement of the century when applied to 2020. To start, the world was dealt an unprecedented hand with the COVID-19 pandemic, which caused whole countries to shut down as people were forced to quarantine in their homes, and many businesses and schools shuttered for several months. Balances in 401(k)s were pummeled as stocks sank to historic lows.i As spring turned to summer, problems compounded in the United States in particular as social and political vitriol weighed heavily on a starkly divided electorate preparing to cast ballots for the next president.
As if personal finance wasn’t already a source of stress, 25% of US adults reported that someone in their household lost their job due to COVID-19, leaving thousands struggling to make ends meet.ii Even for those lucky to remain employed with access to a company sponsored retirement plan, uncertainty loomed and, perhaps, highlighted more than ever the importance of outreach, guidance and assurance from employers. Drawing from conversations with clients and data gathered from industry partners, as well as our own Global Retirement Reality Report, here we explore observations and insights into the impact that the pandemic has had on plan sponsors and participants alike, and what plan sponsors should keep in mind as we settle into a new normal.
1. It required plan sponsors to rethink their engagement tactics. Necessity is the mother of invention — so the old saying goes. When COVID-19 hit, plan sponsors had to pivot their engagement initiatives due to remote work, lockdowns and social distancing rules. Some had to rethink how to best reach participants, who were already inundated with daily communications around the pandemic. On August 18, we hosted a webinar, “Evolving the DC Experience for Pandemic-Pinched Participants,” featuring a panel of two plan sponsors and a consultant, who shared their insights.
“In-boxes were overloaded,” says Kathleen Kelly of Compass Financial Partners, an institutional retirement plan consulting firm, “so we focused on creating resources that anticipated [plan sponsors’] needs, as well as the educational needs of their participants — when they needed them.”iii
Information is best received when it’s relevant and can be practically applied. Given the state of the financial markets, Kelly and her team knew that certain topics would be vital for their plan sponsor clients and their participants. “We pushed out messaging and resources about how to stay focused on the long-term strategy and deal with market volatility,” she says. In addition, she says, Compass worked to educate sponsors and their participants on provisions of the CARES Act, which was intended to provide economic assistance for US workers during the pandemic.
Just as timing and relevance are important factors in participant outreach, so are logistics. After rolling out a successful 2019 participant program that involved several in-person events, complete with red carpets and financial representatives on hand for one-on-one meetings, Staci Schneider and her team at the Indiana Public Employees Deferred Compensation Plan wanted to do it all over again in 2020.iv
“We were living our best life, pre-March,” Schneider says, “[we had executed] a campaign that was meeting and exceeding our expectations.” And then COVID-19 hit, which meant that the in-person events (one even included a food truck), would have to be canceled. Lockdowns and social distancing rules meant that Schneider and her team had to scramble for a Plan B. “We had to respond quickly,” she says. “People were watching — they wanted to know what was happening because this was very personal to them. This is their money.”v
And so, Schneider and her team regrouped and reset their plan for 2020: Instead of the six in-person events they had planned, they arranged for 12 virtual events covering topics such as market volatility and retirement readiness. In addition, she says, the team explored various other ways of reaching audiences. For example, using recordkeeper data, they developed special messaging for participants they identified as high-risk (those with less than ideal asset allocations based on their age), to encourage them to review their investing strategy.vi
So was this pivot successful?
“We got the response we hoped we’d have,” Schneider says, with 850 participants attending the 10 virtual events that had been held by August, and 21% of those participants scheduling one-on-one sessions with a financial rep.vii
It turns out that employees like remote sessions. They’re easy, accessible and most of all — convenient. Convenience is a key component of any engagement tactic. Behavioral science tells us that we have to remove barriers in order to get people to take action. So, in the long run, what was thought to be a less desirable engagement strategy (holding virtual versus in-person events) turned out to be just the thing employees wanted. Not to mention, virtual events are great for plan sponsors, too.
“I like virtual,” Schneider says. “It’s inexpensive, it’s nimble and it allows us to add events quickly.”
2. It reinforced the importance of financial wellness resources within the workplace. In general, employees are most engaged with benefits during periods of inflection or change — COVID-19 and 2020’s wild market activity, of course, being extreme examples of the latter. A July 2020 survey conducted by the Employee Benefit Research Institute (EBRI) showed that the COVID-19 crisis increased worker engagement with employer benefits such as emergency funds, short-term loans and payroll advances, in particularviii — which is no surprise, given that many households found themselves suddenly without steady income due to COVID-related layoffs or furloughs.ix Likewise, inflection periods are also prime for employers to highlight resources and plan features that participants may not be aware of. Of the 250 employers responding to the EBRI survey, 90% reported having taken steps to address the financial well-being of their employees, with the most common action being the promotion of existing resources.
“Participants wanted reassurance that they’re doing the right thing,” Kelly says, citing that 80% of participants within her client base reported being most concerned with running out of money in retirement. This is where support and guidance from a plan sponsor are crucial, and pointing to existing resources, especially for nervous pre-retirees, can be tremendously helpful.
“Overall, we’ve seen an increased demand for info about retirement benefits and participants wanting to check in with their plan,” Kelly says, “a very positive byproduct of an unprecedented environment.”
3. It didn’t really affect participant saving or investing behavior. The historic market volatility that resulted from the coronavirus pandemic didn’t send retirement investors running for the hills. Rather, many participants “stayed the course” just like we’re taught to do when investing for the long term.x,xi Savings rates didn’t seem to take a hit, either. In fact, of the 1,042 US defined contribution plan participants we surveyed for our 2020 Global Retirement Reality Report, only 13% reported having reduced or stopped their rate of saving during the pandemic.xii
Schneider shares similar observations: “While participants are engaging more with their accounts and retirement plans, we’re seeing minimal change in their activity in regard to decreasing actual allocations or contributions.”xiii
And despite the increased engagement with loan assistance benefits as noted above, interestingly, many employees did not actually take advantage of the withdrawal and hardship loan forgiveness offered through the CARES Act.xiv
Whether that behavior was intentional or a result of good old-fashioned inertia, for the most part it’s evident that the volatile market activity didn’t cause many participants to take drastic measures around their retirement savings. One major caveat to this, of course, is that many lower-income workers who would be more likely to borrow or take loans from their retirement accounts don’t actually have access to a workplace retirement plan in the first place. This point perhaps further highlights the need for access and coverage for those in lower paying jobs, including freelancers and other gig workers.
So where do we go from here? Time will tell as the pandemic continues on, though there is light at the end of the tunnel with news of a vaccine on the horizon. But where institutional retirement plans are concerned, this year has all but reinforced philosophies we already knew to be true. For participants, it’s the tenets of retirement investing: Stay the course, contribute as much as you can and check in with your plan. For sponsors, it’s been a reminder that a paternalistic approach to retirement benefits is vital — your participants need you.
“This has renewed the lesson that the participant comes first,” Schneider says, “and we must respond and pivot to their needs, and not the other way around.”
i foxbusiness.com, “The Dow’s biggest single-day gains and losses in history,” November 9, 2020.
ii Pew Research Center, “Economic Fallout From COVID-19 Continues to Hit Lower-Income Americans the Hardest,” September 24, 2020.
iii State Street Global Advisors webinar, “Evolving the DC Experience for Pandemic-Pinched Participants,” August 18, 2020.
viii Employee Benefit Research Institute, 2020 Financial Wellness Survey: Employer Perspectives with Special Focus on the Impact of COVID-19, September 22, 2020.
ix Pew Research Center, “Economic Fallout From COVID-19 Continues to Hit Lower-Income Americans the Hardest,” September 24, 2020.
x State Street Global Advisors webinar, “Evolving the DC Experience for Pandemic-Pinched Participants,” August 18, 2020.
xi State Street Global Advisors, 2020 Global Retirement Reality Report, May 2020.
xiii State Street Global Advisors webinar, “Evolving the DC Experience for Pandemic-Pinched Participants,” August 18, 2020.
xiv Employee Benefit Research Institute, 2020 Financial Wellness Survey: Employer Perspectives with Special Focus on the Impact of COVID-19, September 22, 2020.
xv The Wall Street Journal, “Americans Were Given the Coronavirus Option to Raid Their 401(k)s. Most Didn’t,” November 5, 2020.
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