Strategies To Help 401(k) Participants Overcome Practical Barriers To Retirement

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With Guest:

Chris Anast, CFA

Senior Retirement Strategist

American Funds, part of Capital Group

Chris Anast, CFA, is a Senior Vice President, Senior Retirement Strategist with the Retirement Strategy Group at American Funds, part of Capital Group. Chris has 20 years of institutional investment experience and joined Capital Group in 2017.

Prior to joining Capital, Chris was a Director, Chicago Investment Practice Leader, and a Senior Investment Consultant at Willis Towers Watson. His primary responsibilities at Willis Towers Watson included leading the investment consulting practice for the Central United States, participating on strategic leadership roles for the global business, and lead investment consultant on Fortune 500 companies for defined benefit and defined contribution plans on both and advisory and delegated/OCIO basis. 
Chris was also one of the founding members of the Mesirow Financial Investment Strategies defined contribution practice offering 3(21) and 3(38) fiduciary services.

He has been a regular contributor to DCIIA Plan Design and Administration Committee including a primary author of the DCIIA white paper, “Defined Contribution Plan Success Factors”.

Chris has a Bachelor of Science degree in Finance from the University of Florida. He is a Chartered Financial Analyst. He is a member of the Chartered Financial Analyst Institute of Chicago and participates in other organizations such as EBRI, PSCA, and WISER.

Recap, Highlights, and Thoughts

This week I had a timely conversation with a new guest, Chris Anast, CFA, and Senior Vice President, Senior Retirement Strategist with the Retirement Strategy Group at American Funds, part of Capital Group. We focus mostly on the paper he authored with DCIIA about the "Five Practical Barriers to Better Retirement Outcomes.” Interestingly, this was released shortly after the world was turned on its ear with the COVID pandemic. While I wont’ steal his thunder on the five practical barriers, I will say we thoroughly vet if their findings are still relevant today. Towards the end, we take a little tangent and think about other barriers employees face on their journey to retirement and how employers can help. 


Before we get started, thank you to all of our loyal listeners. I hope the content has helped you navigate this crazy time in the markets and economy. As a reminder, please share the podcast or any takeaways you have with friends, colleagues or anyone you feel could benefit. They can find us by searching 401(k) Fridays on their favorite podcast app, or by going to the website at 

Thats it, I know you will enjoy my conversation with Chris. 

​Sincerely Your Host, 

Rick Unser

NEW: Episode Transcript

Rick Unser (00:00):

Well, Chris, welcome to the podcast. Thanks for taking the time and in this crazy world that we live in today. I look forward to hear what you have to say about some barriers to better retirement outcomes. So thanks for being here.


Chris Anast (00:14):

Great. Thanks Rick. Thanks for having me.


Rick Unser (00:15):

Well, I guess just let, let's start right there. It seems like forever ago, right? But you guys published a paper, five practical barriers to better retirement outcomes that I thought was really good. You put that out right as the world started falling apart. Not that I'm blaming you for that, but do you think the observations that you made at that point in time are more or less relevant today than they were just that short couple of months ago?


Chris Anast (00:42):

Yeah, that's a great question, Rick. And if we think about, the paper was published in April, which was right in the thick of everything, and it had been in the works for some time and leading up to press time. We all got to the point where, you know, every email and retirement industry paper and webinar that came across our desks seemed to be about the current Corona virus and the crisis we were facing. And we even kind of looked at each other and thought, do we even push this out? Is this being tone deaf to what's going on in the world right now? And when you really look at the five key points of the paper, which deal with missing participants, loan leakage assets, moving out of plan participants leaving at retirement and then annuities and plan, we felt that all of those points were still equally as relevant and many of them, even more so when you looked at the current situation, the paper's really focused on dealing with real life obstacles that planned sponsors or participants face in achieving financial security. And in particular the two probably most prevalent just with the current legislation that was being passed, looking at missing participants and loan leakage or two that were pretty top of moment. And so we tried to highlight those as things that people should be focusing on as these practical obstacles that are kind of in our way to really help brand sponsors, participants, achiever, time and security.


Rick Unser (02:09):

And I guess with the benefit of hindsight here, I love the five that you came up with. Are there any others that you would add to the list based on this current crisis that we're in? Are you pretty good with the five that you have listed out?


Chris Anast (02:25):

So the five were absolutely not meant to be all inclusive. There's a long list probably ever changing. And even looking at this current world right now, I look at participant behavior of how do we make sure that good behaviors within their investment in their asset allocation, their distribution phases. There's a long list of things and practical barriers. So this is really just the start and five that those of us on the member of the defined contribution, institutional investment association plan design and admin committee got together and said, here's five that we want to highlight right now. And in the future you could even see an extension of this. To highlight five new practical barriers because certainly the list goes on and on.


Rick Unser (03:08):

No, makes sense. Well let me dive in here. I think the first point you mentioned was missing participants and I understand how a missing participant can be a potential issue for an employer, but I don't know, I don't feel like I go missing. So how is it that a missing participant can be bad for themselves?


Chris Anast (03:29):

Yeah, and so first let's define what a missing participant is or what we mean by that. And really it is an individual that there is no communication or no response from from a former participant in a qualified retirement plan that has a non zero balance. So you are plan sponsors or employers are communicating with these individuals and they're not getting any response from them when they needed a response for something. Whether that's to confirm investment election, whether that's to take a distribution, those are defined as missing participants. Now there's a couple of ways that you could become a missing participant. It could be that you've separated from the plan and you moved and the contact information that the former employer has for you is wrong. So you're not even getting these communications. It could also be an individual that actually is getting the communications, but they're not paying any attention to them.


Chris Anast (04:25):

It's maybe from a plan or employer that they had long ago and they don't ever even look at communications that they get to them. Or perhaps it's from an employer that changed names and it is a new company and the communications are getting are from affirm that they don't even recognize and they're familiar with that. So that is really what a missing participant is. And those are some of the causes. And there's a lot of levers that plan sponsors have to promote retirement security that are incredibly effective right now. And that was with auto features. And unfortunately some of these auto features have actually created a high number of unengaged participants. They were automatically enrolled in the plan and there was a great behavior that was created, meaning they were saving for retirement, but they were unaware of this account balance. Even though communication was sent to them, they weren't engaged with the plan.


Chris Anast (05:16):

They got enrolled, they were saving, but they didn't know that this would count. Bowels was accumulating. And if you kind of buckle that on to looking at surveys, that shows the number of jobs that people have now and how it's increasing. If you look at a LinkedIn survey that showed that the number of companies that people have worked for or in five years after college has deviled capital group did a survey about generations and it looked at 30% of millennials have held three or more jobs in the past five years and that was three and five times more than Xers or boomers had held in the past five years. And these individuals are having a short tenure at their jobs, but since they've been doing good behaviors and saving for retirement through auto-enrollment, they have these balances. And the problem with the missing participants is they're unaware of the total picture of their retirement future.


Chris Anast (06:12):

Knowing about your total retirement picture is very important and knowing the financial security that you can have with the total number of assets that you have. And it's not really just for the financial security, but also for the comfort that it can bring. Because stress from worrying about saving for retirement can translate into health issues but then translates into higher costs and then financial stress for affording medical bills and things. So it's this endless cycle that comes into that. And when you look at the people that need to know about these other assets that they have, whether that's security, whether that's for access, especially in times like this with looking at coronavirus related distributions and things like that, low income households are twice as likely to have missing participants. And so those are the households that it's even more important for them to have an idea of their full financial picture. It's these balances that are just left out there and we need to make sure that individuals are able to find them and see that entire retirement security that they have with other employers. As we look at the increased number of jobs that people have.


Rick Unser (07:19):

Well and I thought one of your points there on how somebody can go missing was, was interesting and I think also something that could be a sign of the times as we move forward here is just the idea that Hey, well I had a retirement balance with ABC company. ABC company has since been bought, sold, exchanged hands two or three times since I was there. And now it's coming from, you know, Acme enterprises. I don't know who the heck Acme enterprises is, so why am I opening an email from them or why am I opening mail from them? It's junk, it's spam, it's whatever. I don't know. One thing that I think is probably a potential outcome of this whole economic crisis that we're going through here is there's probably going to be a little more M and a, there's probably going to be some consolidation of companies. There's probably gonna be some companies going out of business and changing names are being bought by private equity. So I think that's a really good point as well for employers and employees. Just to keep in the back of their mind is that that's probably just a natural outcropping of this market cycle and economic cycle we're going through right now.


Chris Anast (08:22):

Yeah, that's a great point. And I even think about, I'm currently working with capital group, but before coming to capital group, I worked for a firm that while I was with them for eight years, went through three mergers and acquisitions and now that I've been at capital for three and a half years, that prior firm is going through another. And so looking at the firm that I had started with initially it is three different names that have come and now one that I is changing and it won't even be the name of the former employer that I worked for. So that's a great point. And looking at some of the STI, I think you are bound to see a lot more activity in that space. So it puts it even at more at risk.


Rick Unser (09:00):

So coming back to your comments as well. I get it when you say, all right, it's good for people to know that they have this money. It's good for security, it's good for stress, it's good for them to be aware of that and kind of keep track of that. Are there any other benefits to employees or employee ERs to tackling or allocating some time or resources as the world reopens or as people are looking to prioritize projects for the remainder of 2020 or going into 2021 that says, while there's really a pot of gold at the end of the rainbow here, if you can get a handle on the missing participant problem within your plan.


Chris Anast (09:40):

Yeah. You know, the missing participant in the focus on missing participants really came from the DOL enforced finding ms participants for pension plans years ago, and through that they recovered a significant amount of assets. There's roughly about a billion dollars of pension plan benefits that they were able to then find individuals and pay out. And so when they had that success, they shifted to defined contribution plans and saying that you have these small balances, there's a prevalence of missing participants out there. So it was a big initiative of the DOL just recently within the past two years pushing on DC plan sponsors to do this. There has been a lot of guidance with very little specificity on exactly how you do these things and you know, short of having dedicated staff to do this. It's a difficult task, but I think one, one thing that should be done and in a time when right now there may not be a lot of attention paid to this, but you do need to think about those assets that are out there for individuals and the great importance for them to be able to claim them to put forward some effort and maybe even thinking about stopping the issue and then focusing on finding that meaning.


Chris Anast (10:57):

Looking at how some of your participants have gone missing. Why is it, do you think that the individuals you cannot contact, why is the information bad? Are you doing a good job at collecting things like personal information that doesn't change like cell phone numbers and personal email addresses rather than relying on standard home mailing addresses and more land lines or phone numbers and obviously at work email that isn't going to work after separation. So it's little things like that and that was the focus of it seems like such an easy thing to do to find someone to give them money. But once again, the theme of the paper is these practical barriers that seems like small changes could make things so much easier, but we wanted to just provide a forum for discussion on how we actually do that because it's not always as easy as it seems.


Rick Unser (11:47):

No good points. Let me move you on to your second point, which is 401k loan. And I don't know, one thing that's been interesting as part of this whole Corona virus and the cares act and the provisions here, we've had a lot of passionate, let's just say conversations with employers about loans and loan provisions and for those that worked with record-keepers where they needed to opt in to the cares act and opt into some of those new options, whether they be the coronavirus related distributions or the new increased coronavirus related loan limits. I got to say some of the biggest debate and conversation was around whether or not we should incorporate these coronavirus related loans. Should we go up in the amount of loans, you know, go from that 50,000 max to 100,000 max. So I got to tell you, I was pretty surprised and I think impressed as well that there was as much thought and consideration given by a lot of employers about the issue of loans. Obviously with what's going on today. So what have you seen there as you think about loan leakage and what you guys talked about? I know that probably wasn't part of the paper itself, but I think they're kind of related in terms of what I'm seeing out in the market.


Chris Anast (13:12):

They're absolutely related. And let's divide the two issues. There's the practice of offering loans and a defined contribution plan. And in the history of me working with large corporate DC brands, I've only come across one large plan that did not offer that as an option in their plan. But I did come across one, they explicitly did not allow any loans from their plan. So there's practice of giving loans and then there's loan leakage. So just so we don't confuse the two. When we talk about loan leakage, we're talking about plan assets that have permanently come out of the plan as a result of a loan default. That's what we focused on in the paper is that loan leakage. And you know, if I look at the average loan default rates over all individuals that have loans, it's pretty low. It's only about 10% so that's a good thing.


Chris Anast (14:10):

The issue comes with people that leave their plan. And so when you are a terminated employee, you have left the firm the default rate on a loan, if you have a loan outstanding, that default rate that was 10% for all participants goes up to 86% of participants default that have a loan outstanding when they leave their employer. And so that equates to about seven point $3 billion of leakage annually. And so the practice of offering a loan, like I said, I only came across one program that explicitly did not offer loans, but removing loans I really don't see as an option. And actually the responsible use of loans can a very valuable tool. And I should mention that throughout all of the loan discussion in the paper running verse from, from custodian financial was the primary author there. And it's a tremendous resource for that. But when you look at the loan and to put even personal experience on it, you know, I took a loan out of my form came when I purchased my first home and it was in the guise of a home purchase.


Chris Anast (15:12):

So I had 15 years to repay it. But when I did it, I made some promises to myself. I said, I'm going to take this loan and I'm going to pay it back as soon as I can. And so I ended up taking it because it was the appropriate time of when I purchased the home and I paid it back in three and a half years. So I was able to get the money to pay it back because I say it didn't, that was weighing on me because I knew two things. I wanted to pay it back as soon as I could and I wasn't going to stop contributing to the plan when I took the loan. So if I don't say so myself, that's responsible usage of a loan. But you do have times when loans are being used habitually and you have a tremendous number of loans because it's just you're trying to fight to pay your normal expenses.


Chris Anast (15:59):

And so when you look at the loan leakage issue versus what's going on right now with legislation that has come through and increased the dollar amount of loans. First of all, the good news is we haven't seen a tremendous increase. We've seen an increase in inquiries, but we haven't seen a tremendous increase in the typical dollar amount of loans. The average dollar amount of loans has stayed pretty stable even from prior to the coronavirus issues, although it's still early. But when we look at where you are and your evaluation of whether you take a loan from your plan or coronavirus distribution, that is where I see as a big question for individuals right now because you're thinking about this emergency savings issue that we know most people don't have the ability to fund a thousand dollar unexpected expense and now that unexpected expense for individuals could become their mortgage.


Chris Anast (16:58):

And so the key to looking at the cares act and the coronavirus distribution versus alone is evaluating where you are financially with job security and the ability to pay this money back. Because while through the cares act alone, payments are suspended through the end of 2020 barring any other regulation and January of 2021 loan payments are due, the new year comes with a payment due and so the inability to pay that loan means that you're going to owe taxes and penalties that you wouldn't owe if you were to take a coronavirus related distribution. Now, I am not saying that the coronavirus rate distribution is better than alone. If you have the ability to pay that loan and you know that you, you feel comfortable and secure and the ability to service that loan in the future alone, a better situation just because of the way that you can then spread it out, you can figure out and you always have the options to pay it back. The coronavirus later distribution, while you still can pay it back over the course of three years, it still is more likely, I think to be money that's coming out of the plan because people aren't even thinking about it as much as where the loan comes with that mentality of it's a loan, I have to pay it back.


Rick Unser (18:13):

Yeah, and there's been some interesting conversations I've had both on the podcast as well as just with employers about some of those very points. And honestly I think some of the hesitation that people have had just about the loan concept in general is, is exactly what you said, which is, okay, so let me get this right. We're going to give somebody the ability to take a loan of up to a hundred thousand dollars and if I'm doing the math, that means that they've got to pay $2,000 a month roughly to pay off that loan within the five year period when those payments start again. And to your point, I think a lot of employers have said, I don't know. I don't know that that's really a great option. I don't know that that's sustainable and to me that sets us up for higher rates of default. That sets us up for more people's retirement balances getting just decimated because of their inability to repay a loan, not understanding the consequences of, well yeah, I've got to your point 2020 where I don't have to make any payments, but man, 2021 is financially right around the corner.


Chris Anast (19:21):

Right. And I would go back to the whole notion that not allowing loans really isn't an option. Loans are strangely attractive even to people that don't take them or that responsibly use them. About right before, I was actually fortunate to be able to get some travel and it was work-related. Right before the world turned upside down. I was over in Guam for a conference and when we were chatting, it was in the restaurant at the hotel for breakfast. We used to stay in hotels for long ago and I was eating breakfast and the waitress had seen my badge, which was sponsored by a larger organization that sponsored 401k plans and she saw the name of the company and assumed I worked for the company and immediately started asking me questions about the loan provisions and she had explained to me that she had taken a loan three or four years ago, just recently her uncle passed away and she got some money from the inheritance and she used the money to pay back the loan immediately.


Chris Anast (20:27):

That was the first thing that she did and her question to me was, is there any chance that the removal of the loan feature would take place? Because if it did, she wanted to take another loan right now because she didn't want to risk not having access to it. And here's someone that rapid when they got the money and knew that, Hey, I need to settle my debts first and paid back the loan. Whereas she just didn't want to lose that option to be able to access that money if she needed to. So loans can be important even for those that don't take them and that responsibly use them.


Rick Unser (21:01):

Yeah, and I guess as you think about loan leakage, your stat there and, and please let me know if I got this wrong, where when someone changes jobs terminate, separates from service, their rate of default goes somewhere North of 80% I guess is there anything employers can do about that, whether it be planned design changes or communication or anything else, or is that just something we need to be aware of in the broader universe of thinking about retirement plans and people's journeys to retirement that Hey, it's just a risk factor of taking a loan is changing jobs.


Chris Anast (21:44):

Yeah, I think that you got that exactly right. It's 86% of terminated participants that have a loan outstanding default, and I think a lot of it revolves around effectively communicating to those employees that are leaving the firm, making sure that they understand how they could potentially service this loan. I recall an individual that I worked with years ago who did something very similar to me. They took out a loan when they bought their first home and he talked about when he left, he was able to still continue servicing the loan because there are some employers that require immediate payback on termination. I think we've seen a little bit more prevalent in the market to allow continued repayment even once you separate, but it does require setting up an electronic transfer or sending in a physical check to pay that loan to whoever it is is servicing a loan.


Chris Anast (22:36):

And he had talked about how he had moved, this was back when there was no real electronic platforms and he had said that the letters that he was getting, he didn't get them and so he had forgotten to send the checks and he had to call and explain and realize that it wasn't a default but they were going to default him on his loan. So it can be confusing when you leave to realize, and frankly remember if you don't have an automated feature that you can immediately set up to continue paying and servicing the loan. That I think is one of the most important things that employers can do, but then also looking at your current loan policies and the procedures, making sure that they're aligned with any industry innovations and best practices that you're keeping your finger on the pulse of what's going on in these markets. And then there's also the introduction of other things that people could do, which is offering things like loan insurance that comes with the features that would actually help pay off alone or make a couple payments on a loan if a payment had to be missed.


Rick Unser (23:36):

Yeah, and have you guys looked into or given any additional thought to the pros and cons of loan insurance is, I think that is a, a newer concept that starting to come to market. I think for employers, it's not something that they've like, Oh yeah, the last three companies I've worked with, we had that and let's offer that, or let's keep doing it. It'll get. My impression is that is a little bit more of a newer entrance into this conversation.


Chris Anast (24:02):

You're absolutely right there. It is somewhat of a newer entrance and I think it just needs to be evaluated at what the fees are for the service it participants will understand it and the take up rates if it's going to be an opt in opt out for how employers actually use those types of features.


Rick Unser (24:18):

And I guess tangentially related to this conversation is that, you know, just with participants leaving is the next point that I think you guys had in your paper, which was participants leaving out retirement and how that can be a potential roadblock or barrier to better retirement outcomes. And I don't know, I've talked about this with your colleagues through Walton on a prior podcast and, and I was one to raise my hand and say that for a long time I believed in and said, and quite frankly espoused to a lot of employers that 401k plans are great accumulation vehicles but not great distribution vehicles. So logically it makes sense for somebody to move out of the retirement plan when they retire and move into some other type of vehicle. I guess as we sit here today, my thinking's pivoted a little bit, but am I right or is that the trend now that you're seeing or that you're thinking is more of a positive or helpful trend is for people to leave their money in retirement plans?


Chris Anast (25:20):

Yeah, and the question of if you're right or wrong, rewind eight to 10 years ago, I think you were right. They were great and they still are great accumulation vehicles. However they struggled in the decumulation phase. I definitely think it's time to review your answer on if you still would agree and I think you started to pivot, but when I started in this industry, the mindset of plan sponsors that I worked with was we take participants to retirement and when they retire they leave the plan. They're an administrative burden. Their balances are going to be decreasing if they're taking distributions. We have to deal with those distributions and there really just wasn't something that they wanted to continue to wrestle with. But plan sponsors at every industry conference. They take straw polls of looking at if plan sponsors are encouraging or accepting of participants staying in the plan and you've seen a tremendous increase in the number of plans sponsors and in fact I'd say the vast majority want participants to stay within the plan and it really revolves around five key reasons that we at capital group feel that plan sponsors have come to this decision, which is first they've understood that DC plans are the primary savings vehicle for participants, and so looking at that being the primary savings they need to make sure that they focus on all phases saving and each simulation.


Chris Anast (26:51):

Second, with the boomers coming in and iStat, many of us see with the 10,000 baby boomers turning 65 you look at by 2031 fifth of the U S population is going to be 65 or older. It's the idea that this is a very significant part of the group. It's going to be a very significant part of our population and demographic. We need to make sure we're focusing on how we are going to service them in retirement and next, the secure act provided some clarity on how we might be able to do that. What are some protections, some clarity on how we might help them generate income in retirement and plan sponsors recognize that retirement is a longterm phase. It's not this event and party that you have and then two or three years later retirement's over and you know you don't even think about it anymore.


Chris Anast (27:41):

It's a 20 to 30 year time period after that party that you were living and that you need to deal with different objectives for the long term strategic asset allocation and spending, which is a much different situation than when you're putting money into the plan. And then lastly is this evolving needs of participants and it evolves around the income that they need, the liquidity that they require, and then their life expectancy of looking at people living longer and needing to be able to support themselves, create that retirement paycheck and the recognition that this primary savings vehicle, this defined contribution plan needs to be a true retirement plan for individuals and that includes being able to help them in retirement.


Rick Unser (28:31):

And I'm going to put on my cynical hat for a second and just say like I get everything you're saying there, but is this change by some in our business due to like you said, you know, one in five people are leaving the workforce and you know, Oh my gosh, how do we plug a hole in the leaky boat and retain more assets, keep more people on our record keeping systems? Is that part of this or is this that? There's innovations, there's change that really makes it much more compelling for people to keep money in their retirement plans beyond their separation from service, their retirement, whatever it might be.


Chris Anast (29:14):

It should be compelling to keep your plan assets within your qualified retirement plan and the notion that we address in the paper kind of looks at the movement of assets of rollovers into IRAs. Now I say that, but you cannot make a blanket statement about what's better when you're just saying what's better a qualified retirement plan or an IRA without knowledge about specifics of each of those two vehicles. I can't say which one is better so we cannot make a generalized statement about an IRA versus a qualified retirement plan because there are benefits to both and in many cases on an individual basis, working may be better than the other, but what needs to happen is careful evaluation of the IRA vehicle and the qualified retirement plan and I look at this with evaluating the fees for the services, the investments that you're going to get and that you got with your prior qualified retirement plan that you may get if you were leaving and going to another company that you may get with your new qualified retirement plan and careful evaluation of those two.


Chris Anast (30:23):

Before you say, I should roll these over into an individual retirement account. And I think about when I've changed jobs in the past, I got advertisements that talked about how easy it would be, especially when you have a record keeper that also has a large IRA platform is how easy it is to just almost hitting a button and your assets can roll over into an IRA. And while I didn't do that, when I came over to a new employer, it was a bit challenging and a bit burdensome to go through the bureaucracy of digging through to find the forms I needed to get everything filled out, to go back to my former employer to make sure I had all of the appropriate information for my prior account that's rolling it from my former plan into the new qualified plan. And so looking at that administrative burden of why is it so much easier to go into an IRA than it is to a qualified retirement plan.


Chris Anast (31:21):

And oftentimes I would argue that if you are going from a plan and into a large plan or multibillion dollar defined contribution plan that the fee level that you are paying within that qualified retirement plan should be more competitive and better for you than in an IRA. Now if you look at the other side of if you're saying leaving that large plan and you're going into another smaller plan, you may be better off leaving your assets at that former plan or small to small or or just dependent on looking at the fee levels. You may be better off moving things into area if you were in a high cost plan that just didn't have the assets and the ability to scale these down, you might be better off moving your assets and related over into IRA but it's making sure you're doing that thoughtfully and I think keys to plan sponsors making that easier is looking at number one.


Chris Anast (32:18):

If they are comfortable encouraging employees to leave their assets in the plan when they leave the organization, that is a symbiotic relationship. The assets within the plan remain high and are able to keep fees low while participants are able to enjoy those low fees so you, you kind of make a statement or whether you're comfortable encouraging plans would have, we've seen a tremendous increase in plans that are, but then we review the transfer process and making sure that the employees can seamlessly transfer assets into your new plan so that you have a good process and procedures in place to confirm that it's a qualified plan, that it's prominent. People can see what forms they need to fill out to be able to do that, qualify by plan, and even provide education on how to evaluate this. Should you move assets from a former plan into ours, should you use an IRA? Just giving education that isn't going to bias anyone, but just give them the process they should use to evaluate the fees that they're paying, where to look that can be helpful and really can help

have a better outcome for participants in the long run.


Rick Unser (33:18):

Yeah, and I think rollovers are really setting up to be one of the next big battlegrounds here and a couple of different fronts. Certainly I think we're starting to see some indication that in the litigation trends that some of the plaintiff's firms are really targeting what additional services, record-keepers or others are providing to employees, how they're utilizing data that they might have to sell additional products such as, you know, potentially rollovers, et cetera. So I think that we're setting up for some interesting times in that end on rollovers that I think could maybe change this conversation a little bit over time. But the other thing that I think is changing a little bit to your point, are employers attitudes around what people should do with their money once they retire or separate from service. I've been in the business for a little while and early on it was, well, Hey, they've left our company.


Rick Unser (34:21):

I don't know that we really want them to keep their money in our plan, or I don't really know that this makes sense for them to keep their money in our plan to. I think now we're starting to see employers really be much more thoughtful about that. Certainly there's still a lot of people that are in the prior camp of, Hey, they're terminated, they're not with us, they're retired, whatever, take your money go. But at the same point in time, I had a great conversation with Tony Tomich at Farmer's Insurance last year and he provided a really good overview of what they're doing to really help their employees that have retired or are close to retirement, to give them a very advantageous plan, structure, investment structure that would help take care of their needs, their investment needs, their income needs through retirement. So I think there's a lot changing in this conversation and I think to your point, probably bears some revisiting or, or maybe some slightly new thinking as it relates to what happens when people are getting to retirement or what does that thought process or what does that engagement process look like when somebody is making that decision of whether they want to move assets out of the plan.

Chris Anast(35:38):

Yeah, and in the long run, it's very important to know your participants know your demographic. Get into the dirt and get into the weeds there, but always remember, don't let the perfect be the enemy of the good. When it comes to making decisions on a defined contribution plan, you want to know some of the minor things, and I know Tony at farmers, they've done a great job, especially when they made big plan design changes and investment structure changes. They did a great job of communicating with the participants and surveying them, trying to figure out what they wanted, what they needed, what were their objectives in retirement, and then they use that feedback to develop the plan that would work the best, but they're not going to get the answer right for a hundred percent of the people. It's just not going to happen. You can't let the perfect be the enemy of the good.


Rick Unser (36:25):

So you're focusing on the vast majority. If you get 70 to 75% of the individuals right and they're happy, you're in good shape, and that leaves kind of bet what is likely to be the vocal minority. You deal with them as they come. But in general when you're doing things that are in the best interest of the participants, which as plan sponsors and producers, you are, we should, you're going to get to a better outcome. One of my favorite expressions to let the perfect be the enemy of the good. I'm glad other people using it. Well I think we kind of conflated two points there that you had in your paper about the movement of assets out of plans via rollovers and participants leaving the plan at retirement. I think the last point that you had was about implant annuities and it was funny, I was thinking back on this and just looking back on some prior episodes I did and before this whole Corona virus and cares act thing, we have the secure act and that was the most revolutionary change that we've seen in decades to retirement plans.


Rick Unser (37:28):

And for a hot second there, it seemed like all we were going to be talking about was retirement income and that was just going to dominate the conversation for the foreseeable future. And then all of a sudden the world got turned on its ear. But I know that conversation's not going away. I know that's as people get back to a maybe a little more normalcy in their lives and and a little more financial stability. Personally, this is going to become a bigger conversation and get closer to the top of the stack for people to think about. So I guess where does that retirement income conversation or the implant annuity conversation stand at this point?


Chris Anast (38:06):

Yeah, the Secure Act. Remember that? That's a good point. It's like in the 20 years I've been in this industry about five or six years after I started in 2006 you had the pension protection act and then there wasn't really any broad pension legislation for 15 years. And now in the last five months there's been two pretty significant acts of pass. And so use somewhat of, maybe a simple analogy here. When I got married, my wife and I were about to have my first child. My mother had asked me about if my wife and I had talked about where do we put the children in terms of our marriage first in priority because many people think about our marriage is the first thing we need to think about. Because if we do that right, the children will be fine and others put their children first and foremost even if that's by the wayside of their relationship with their spouse or significant other.


Chris Anast (39:01):

And my mother asked me if we had talked about that. I said, not really. And she said, you know, my mother and father had been married 50 years this year, but my mother said when we are having our first child, my oldest brother, we talked about it and we came to the decision that we focused on whatever needed the most attention the most. And that analogy really I think plays well into exactly what's transpired over the last four, six months. Because retirement income was the most talked about topic at industry conferences, papers that had come out, panels and webinars that were out in the industry. And it was in dire need of attention for kind of the five reasons that I had talked about were people needing to look at having retirees stay in the plan, wanting to figure out how they solve that problem.


Chris Anast (39:52):

And so it was in need of attention and that's what plan sponsors were giving it. There was a lot of talk, there still wasn't a tremendous amount of action, but then like you said, the world was turned on its ear and attention needed to be put elsewhere, at least for right now, looking at this care Zack that came in, print sponsors needed to evaluate, they needed to look at the current situation in the market, what was top of mind for their participants. It wasn't for the vast majority even saving for retirement, let alone generating retirement income. And so they needed to focus on that. And that's really where we're at right now. So I think our people going to do this next month likely not. But as this calms down, I think you're absolutely right. This conversation is not going away. And in many of those conversations and panel discussions that I've been fortunate to be a part of, whether you're an insurance company, an investment manager, a plan sponsor, a record keeper, there is broad agreement that there's not a single solution out there for retirement income.


Chris Anast (40:58):

It is not a silver bullet answer. It is definitely a spectrum. It is a almost retirement tier, if you will. That includes things like education and communication that includes tools for participants to use, and the tools may not necessarily be just about how to create a retirement paycheck. It can be about budgeting and the whole road to get to creating that retirement paycheck to create an instilled good behavior of participants. It's about investment options and choice in those options, and it's really about creating that retirement income stream and being able to evaluate what's right for you as an individual and even working for an active manager. We're active management, I believe true is the way to go. That doesn't mean that I think that annuities are not a part of that solution. I don't think that they're the entire solution. Looking at retirement and the fact that retirement is a phase that changes.


Chris Anast (42:01):

You have different needs in that phase, it seems nonsensical to be putting all of your money and buying an annuity and not having any flexibility with that. You want to have the ability to have liquidity and be able to adapt as retirement adapts so that conversation will be picked up. I think that when things calm down and who knows when that is, but when people at least get to stable and kind of willing to accept the world as it is and see kind of the light at the end of the tunnel, they'll revisit where their priorities were before and in 2019 priorities were about how do we solve this retirement income question.


Rick Unser (42:42):

I would agree with everything you said and I think there is going to be a lot more even than there is today. Energy focus put on the concept of retirement income, but I think there's still a lot of employers out there which are still stuck in that as we talked about a minute ago. Well, Hey, they're not with us any longer. So why do I need to take care of them? Is it a risk to have them in my plan? I don't know if I want them in my plan if they're no longer my employee. So to the extent that there are employers that are thinking that way, or maybe that's something others have heard, an employer say, how do you help start moving that needle a little farther from one end of the spectrum, which is, I don't want them in my plan to, in my opinion, what seems like the complete other end of the spectrum, which is not only do I want them in my plan, but we're going to take care of them and I'm going to provide them some form of income that could potentially last them for the rest of their life.


Rick Unser (43:50):

Or maybe I'm not going to provide them income, but I'm going to give them solutions where they can generate income, which could potentially keep them in my plan for the rest of their life.


Chris Anast (44:00):

So I agree with you that there are plans out there that still have that mindset. Absolutely. As I said, we think we've been seeing a shift to plan sponsors that are embracing the idea of participants stay. However, at the end of the day when you look at balances of a certain size, it's really not the plan's decision. The ability to keep your assets in a plan above a certain level, you have to be allowed to stay within the plan. So you may not, and if you're concerned about risk of having those participants that are, you may not have a choice of having them in there. And so when they retire, you know is the right way to do it, to put up blocks, to make it difficult for them to stay. That doesn't seem to be a good fiduciary decision when you look at the ability of participants to get access to their funds.


Chris Anast (44:50):

And so even though you may not want to cater to retirees, you want to make it a decent ride for them because they may choose to be staying in your plan. And so even if it's not an individual solution that provides guaranteed income like an annuity, giving them tools and guidance that helps them make good decisions because as a participant in your plan, you are still a fiduciary regardless of what phase they are in active employee or retired. If they are still a participant in your plan, you still owe them that fiduciary duty and so you need to consider how to make this a true retirement plan for individuals that are staying within the plan whether you want them to or not.


Rick Unser (45:40):

Yeah, I'm with you and I think that the more people think about this, the more people talk about it, the more people maybe get questions from their employees about how can I generate income? How can you help me create sustainable income? While that seems like kind of a specific question to come from an employee, but I think the point is is that as more people hear about this or see this in the general marketplace, I think potentially we see some groundswell from the participant side of this, which is seeking out or asking employers, which I think it also could potentially accelerate some of the adoption or some of the change in thought process or the change in offerings within retirement plans that are specific to retirement income or just whether it be product education, et cetera.


Chris Anast (46:31):

I think we're definitely going to see changes and I think we're going to see more action at people implementing to try and help people solve that problem. I definitely think that's going to be a trend that we see in the next, I say three to five years not knowing exactly how the next year or two goes with opening up and seeing economic rebounds and where plan sponsors can kind of shift their attention back to other priorities. But I definitely think we're going to see changes and more innovations come out to try and help people create those retirement paychecks.


Rick Unser (47:07):

And before we wrap, one thing that I've been thinking about and would just love to see if this is something that's hit the radar screen or you've given any thought to. I think there's been some real financial damage done to a portion of our population out there. I think there's some employees, some companies quite frankly, that have gone through this whole Corona virus thing with maybe some modest inconveniences around sheltering in place or working from home or not much or some restriction on their travel or things like that. But again, on the other side of the equation, there are some employees that have been furlough that have been terminated that quite frankly, maybe the jobs don't come back. Maybe they don't come back from furlough and I guess just looking at some of those things for some of the populations that have been a little harder hit by this Corona virus or coded pandemic, what can employers do?


Rick Unser (48:10):

What are you seeing people think about or put out there to potentially address some of those barriers which are, Hey, I've got some real financial challenges in my life now. You know, I've taken on debt, I owe back rent or my mortgages potentially in danger of default. I know those are some very specific situations, but I think in general some companies, some employees, these are going to be some real challenges or some real barriers that they're going to have to get over before thinking about starting to contribute to their 401k again or starting to think about their asset allocation or whether or not they should take a loan or not. Kind of a rambling question, but it's something I'm spending a lot of time thinking about and I think employers as they are looking to restart their businesses and and things of that nature, I think that's going to be either an explicit or implicit issue that a lot of people are going to be struggling with.


Chris Anast (49:14):

I couldn't agree more and you know, I struggled a lot even when the cares act came out with embracing it fully because I've worked with defined contribution and defined benefit plans for my entire career and tried to focus on how I could help my clients do the right thing for their employees, for their participants, which largely revolved around saving for retirement and in the answer of how much to save for retirement, the answer was always more. There was never any window in to where you could kind of access that money and bring it out other than alone or in the hardship where you had to kind of prove the financial hardships situation. And when the cares act came out and I thought, Oh my gosh, this is a terrible thing. Like why are we giving people access? But you have to stop and you have to think about the things that you just said where there's people that have lost jobs and are facing incredible financial hardships that this is something that they need.


Chris Anast (50:25):

And I think that while I initially had a negative reaction to the carriage, because I was worried about the financial security for retirement, I go back to my analogy is you end up focused the attention where it needed to be, which was right now, which is people taking care of their families, people taking care of themselves. And so I did finally embrace that the cares act and the provisions it provides with loans and grow the virus related distributions was important. I do think that it should be an employer should look to ways they can help participants in other ways. Then using the provisions of the loan or the coronavirus related distributions and the cares act because it really should be a last resort. Fully understand that maybe there isn't another path and you have to take that resort, but trying to communicate to participants what options they have even in separation and knowing this time, having HR focus on here are the things that you can do and giving access to budgeting tools and ways that you can think of.


Chris Anast (51:32):

How do you trim expenses because you know you're going to be on a fixed income, you know that you are furloughed or don't have a job for a certain amount of time. What can you do to try to take any pressure off having to actually look at having to access your retirement assets, any type of tools and education and obviously career resources, although looking at when those jobs will be added can be a tricky one. And career resources may not be that active in the same industry that you might've been, but I think that that type of communication and framing access to your retirement assets in the appropriate way and realizing that some people may have to use that as the last resort, but making sure that they understand the other paths that they might have before they have to use it.


Rick Unser (52:15):

Yeah, I would agree with that. And I also think that we had a lot of focus on financial wellness leading up to this crisis over the last several years. I know people have done certain things to implement financial wellness. I feel like that's such a broad term, but one thing that I think is going to become a bigger reality is I think this crisis has pandemic, is going to give financial wellness a real foothold. And I think employers that take a minute and reflect on some of the challenges that their workforces have had and get full transparency. I think for some employers this has not impacted them or they've even benefited during this time period. So I think the idea of what does financial wellness mean to your workforce. I think that can mean something very different for everyone and I think that's kind of the point is I think back on financial wellness in prior conversations on the podcast or with employers, I've always kind of defined it as an ongoing process to help employees improve their relationship with money.


Rick Unser (53:25):

I know it's kind of a nebulous definition there, but I think it is nebulous in nature in that it doesn't mean that financial wellness is emergency savings and student loan help. I mean guests that can fall under the banner, but I think for a lot of companies having a thoughtful conversation around what the challenges their employees or have gone through over the last several months, what some of the pressing needs that they either know they have or perceive they have and then constructing some type of program to help address those. I think there's no better time than now to think about some of that and put some things in motion to address those issues as people are coming back to the workforce or people are trying to deal with some new financial realities in their life.


Chris Anast (54:10):

I love that financial wellness is a very broad space and improving employee's relationship with money. I think that's it. That's a great concept.


Rick Unser (54:19):

Well, we've covered a ton of ground. I really appreciate you sharing your insights on your paper there, which we'll have a link to on the website, the five practical barriers to better retirement outcomes. With that said, is there anything that we haven't talked about or anything that we missed that you'd love to hit on or want to hit on before we wrap up?

Chris Anast (54:40):

You know, the, the barrier right now to retirement success can really be about how participants are behaving right now in markets like this. And so working for a capital group, an actively managed investment firm, just focus on kind of key things to remember during this pretty turbulent time period is that market corrections are inevitable, but they're temporary focus on a longterm perspective, be leery of market timing. As we've all seen many studies that show missing the 10 best days in the market over the past 10 years can cut your return and a third. And look at active managers in this type of market. We have seen active managers perform fairly well particularly managers that look at holding investments that provide downside protection. So getting the upside, but also providing downside protection. And lastly, and most importantly, don't let your emotions cloud your judgment and as a participant or as a plan sponsor, that is a very key thing to remember. I know that DIA is doing a lot of webinars and webinars series called managing through the crisis that has a lot of great information that tries to help you keep your emotions in check. Thinking about what to do. Emotions can run high in markets like this. So making sure you ground it by looking at information that helps keep your finger on the pulse of what's going on in the market and what others are doing so that you don't make a knee jerk reactions.


Rick Unser (56:04):

Awesome. Thank you again for sharing all that. You did appreciate your time and certainly would love to have you back down the road and chat through any new information or research you guys are putting out in the market. So thanks again.

Chris Anast (56:17):

Thank you, Rick. I loved it. I'd be happy to come back.

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