There was a time when the jobs done by recordkeepers or advisors, on the surface at least, may have seemed pretty routine. Whether processing enrollments in 401(k) plans and tracking contributions or discussing investments with clients, their work has often been taken for granted. But the COVID-19 pandemic and its economic ripple effects have shined a light on the roles played by each. Plan sponsors and participants have great concerns about the resulting market volatility. Sponsors have additional concerns about proper implementation of the CARES Act provisions. This has put enormous pressure on recordkeepers and advisors.
Plan sponsors, as fiduciaries, have a duty to monitor these service providers. Errors and failures of the plan service providers become the responsibility of the plan sponsor. For the most part, participants will hold the sponsor ultimately responsibility for any problems they face. Losses (whether real or perceived) could even make a plan sponsor a target for litigation. And so the pandemic has made it clearer than ever just how important it is for plan sponsors to receive high levels of service from recordkeepers and advisors.
By and large, recordkeepers and advisors have adapted successfully, though not without stumbles along the way.
North Pier has been in regular contact with ten of the largest recordkeepers and an equal number of the top investment advisory firms to monitor their ongoing changes in response to the rapidly evolving market and overall environment. By and large, they’ve adapted successfully, though not without stumbles along the way.
How We Got Here – and Where Is “Here?”
The seeds had been planted in late February, when advisors began issuing general commentary on the worsening global market outlook, citing the driving role of the pandemic. By early March the likely impact on society was becoming apparent, and soon the anticipated stay-at-home orders and restrictions on mobility became reality. It was clear early on that advisors and record-keepers would be getting a lot of questions about how best to evolve their investment strategies. And so in early March we began to see communications: Recordkeepers offered reassurances about business continuity and their ability to provide services, while advisors began to have discussions with plan sponsor clients about addressing participant concerns.
As the details of the CARES Act emerged, recordkeepers began planning how to communicate and implement its retirement-plan features. There were four main features:
- The suspension of required minimum distributions
- The addition of a penalty-free, potentially tax-free withdrawal option
- An increase in the maximum available loan
- The extension of loan repayment periods
Depending on the recordkeeper, plan sponsors had to decide whether to opt-in or opt-out to the newly available features. For those with recordkeepers that chose to make implementation the default choice unless the sponsor opted out, this left a one to two week window in which the sponsor had to make a decision.
By April 1, at least a few recordkeepers were touting their ability to offer CARES Act transactions to some of their clients. While most weren’t able to respond this quickly, implementation was nonetheless rapid. Not all clients of each recordkeeper were treated equally. Implementation timing differed were reported, most related to what type of documents the plan had (custom versus volume submitter) or whether it had multiple platforms and service levels (i.e., for large plans, core market plans, and small plans).
Dealing with Challenges
Recordkeepers were dealing with multiple challenges: rapidly changing conditions, an unprecedented surge in call volumes, and longer, more complex conversations, all while transitioning their Customer Service Reps to remote work from home environments. Plan participants considering new withdrawals or loans were faced with decisions balancing immediate needs (or wants) with retirement objectives. Some participants sought to better understand their options and the implications of each potential course of action, whether through access to timely and accurate data, guidance, or education.
These challenges have for the most part been addressed admirably. Among other responses, recordkeepers have at least been able to bolster their CSR roster by adding reserve staff, having been prepared by previous periods of market volatility. Nonetheless, efforts have fallen short on occasion. Not all recordkeepers could add staff fast enough. Some plan participants endured long hold times, and some of these ultimately hung up out of frustration. Some plan sponsors also reported weeks-long delays between opting in and implementation. Plan sponsors and participants have reported frustration due to lags in communication and/or slow updates to websites – or, more rarely, outright misinformation regarding the delay in implementation.
Advisors, for the most part, have been holding conversations with their clients, some more effectively than others. We identified combinations of three general strategies:
- High-touch, reaching out by telephone
- Personal emails focused on each client’s unique challenges
- General COVID-19-related emails
While some advisors actively monitored their clients’ recordkeepers and proactively advocated on their client’s behalf, others “stayed in their lane,” responding only to investment-related issues.
The “Next Normal” Is Nowhere in Sight
We are, unfortunately, still in the early days of a long, uncertain journey. Plan sponsors’ responses to the crisis must continue to adapt as the environment continues to shift. Their decisions will be viewed under a microscope by participants who are paying unusually close attention. More so than ever, decisions must be well-considered and prudent.
The value of strong, proactive advisors and high-quality recordkeepers has never been greater. Unfortunately that value usually only becomes apparent when it’s absent.