Savings trends

Ascensus Announces Expansion of Personalized Advice and Managed Account Services

Firm’s Technology Integration Offers Institutional Partners and Advisors More Flexibility on Its Open-Architecture Platform

Dresher, PAAscensus—whose technology and expertise help millions of people save for retirement, education, and healthcare—has created the infrastructure to expand the managed account services available to its institutional partners and clients. With an open-architecture platform and no proprietary investment requirements, Ascensus is well positioned to support this enhanced level of partner choice. The firm now offers four personalized advice and managed account services, with plans to add more options in the future.

Industry research has shown that employees today seek personalized advice services to help them chart appropriate savings strategies. According to Deloitte, retirement plan sponsors are recording higher-than-ever utilization of managed accounts. In 2019, one in five plan sponsors reported at least 10 percent of employees used managed account services.[1] In response to participant interest and demand, more than half of plan sponsors are offering a managed account service, with this percentage continuing to rise.[2]

“The retirement industry is seeing a trend toward saver personalization, and we believe that managed account solutions are an important piece of that puzzle,” states Dan Basile, Ascensus’ head of product. “By investing in the technology to support choice in advice services, we’re better positioned to offer our partners the ability to implement their own fiduciary solutions moving forward. And, by expanding the managed account services Ascensus offers, we can give financial advisors the freedom to choose the option best suited to their clients’ goals.”

Ascensus offers managed account services from Morningstar Investment Management, NextCapital, Russell Investments, and Stadion. Institutional partners and financial advisors may choose to make one or several of these services available to clients during the plan proposal process.

“We will continue to leverage our purpose-built technology to offer our institutional partners expanded choice and enable them to deliver personalized account management services to their clients and savers,” states David Musto, Ascensus’ president and CEO.

About Ascensus
Ascensus helps millions of people save for what matters—retirement, education, and healthcare. Through co-branded, private-labeled, and other governmental partnerships, our technology, market insights, and business knowledge enhance the growth and success of our partners, their clients, and savers. Ascensus is the largest independent recordkeeping services provider, third-party administrator, and government savings facilitator in the United States. For more information, visit ascensus.com.

Get the latest trends and insights based on our proprietary data from more than 115,500 retirement plans, 6.2 million 529 accounts, 405,000 health savings accounts, and 22 ABLE plans.* Inside America’s Savings Plans highlights average savings levels across these tax-advantaged accounts and showcases plan features that drive participation and growth. The State of Savings report outlines how plan contribution and withdrawal behaviors have shifted over the course of 2020 and since the passage of the CARES Act.

*As of June 30, 2020.

[1] Source: 2019 Defined Contribution Benchmarking Survey Report, Deloitte, 2019.

[2] Source: The Cerulli Report: U.S. Retirement Markets 2018.


How Saver and Employer Behaviors Are Evolving in Response to COVID-19

Proprietary data from Ascensus reveals how U.S. employees shifted their savings behaviors in March 2020, as the COVID-19 outbreak caused major disruption to the U.S. economy and financial markets.

The following insights serve as an early baseline of how contribution and withdrawal behaviors have evolved in response to the pandemic. However, we expect continued shifts and new trends emerge as we see the full impact of the CARES Act, which was signed into law on March 27, begin to flow through the economy and Ascensus’ savings plans.

Retirement Savings1

  • Dollars contributed to retirement plans by employers and employees in March were 26% lower and 19% lower than projected, respectively, based on year-over-year trends.2
  • This decrease in dollar contributions is partially a result of a 5% reduction in plans that contributed in March.2
  • Still, the number of employee distributions and new loans taken from retirement plans fell below monthly projections. Dollars requested per employee distribution and the number of employee hardship withdrawals aligned with monthly projections.3

Education Savings4

  • In the last two weeks of March, the average amount per qualified 529 withdrawal was 15% lower compared to the same period in 2019. This may be attributable to the pandemic’s impact on higher education, as some colleges and universities reduced fees when they transitioned to remote learning.
  • In the last two weeks of March, the average one-time contribution to a 529 account was 20% lower compared to the same period in 2019.
  • Notably, there was no significant change in nonqualified withdrawal activity as of the end of March.

In the face of COVID-19 and its related challenges, many Americans understandably adjusted their contributions to savings plans. However, savers haven’t yet tapped into existing savings and are making efforts to “stay the course” to help ensure financial security.

Additional relief from the government, including the passage of another $320 billion for the Paycheck Protection Program (PPP), will help small business owners and savings plan sponsors continue to support their employees.

Qualifying employers should connect with a financial advisor to learn how PPP funding can benefit them and their employees. With this funding, employers may be better-positioned to continue to administer plans and, along with their employees, return to regular contribution levels.

To learn more about the latest regulatory updates and coronavirus relief, visit ascensus.com.

Methodology and Disclosures

1March 2020 projections are forecasted from a computed index using activity from 2019 through February 2020.

2Retirement contribution analysis is based on plan data history from the Ascensus platform from January 1, 2019, through March 31, 2020. To ensure consistency in year-over-year projections, the plan population included those plans that were active as of January 1, 2019, and still active March 31, 2020. Individual(k) and balance forward retirement plans were excluded.

3Retirement distribution and loan analysis is based on all saver transactions from January 1, 2019, through March 31, 2020.

4Education savings analysis is based on activity from January 1, 2019, through March 31, 2020, for all funded 529 accounts on the Ascensus platform. Per-account averages were used to include activity from 529 accounts that were not on the Ascensus platform at the start of 2019 but were converted during this time frame.


Rick Irace Shares Thoughts on the Outlook for Retirement Savings in 2020

In a recent WealthManagement.com article​​, Rick Irace, COO of Retirement, shares his thoughts on potential developments that retirement plan consultants should monitor through 2020. As always, plan consultants should keep up with the latest issuances from the Department of Labor, the SEC, and other government agencies. 2020 is also an election year, which means “it’ll be interesting to see what—if any—changes to the retirement plan landscape are discussed.” Advanced analytics are continuing to gain more and more prominence among plan sponsors and service providers, alike, which should advance the ability to forecast retention, gauge plan effectiveness, expand data points, and improve services.


Barb Van Zomeren Discusses How Advisors Can Help Women Overcome Retirement Savings Hurdles

SVP Barb Van Zomeren recently contributed a byline to ​Employee Benefit News​​ in which she discusses how advisors can help women​ overcome retirement savings hurdles. According to EBRI, the average retirement savings shortfall for single women is nearly twice that of single men. The Social Security Administration reported in 2019 that ​unmarried women rely on Social Security for 45% of their total income, compared to 32% for unmarried men and 27% for couples​.​​ Van Zomeren states that the main reasons for these discrepancies are that women earn 18.​6% less than men on average, ​live 2.4 years longer, have more healthcare costs, and are more likely to take career breaks to focus on family care. ​

Advisors can help their female clients by ​encouraging them to save in an IRA if eligible, contributing to an HSA for future medical costs, contributing enough to retirement plans to receive a full employer match, and learning more about investing.


Rick Irace Reflects on Key Trends in the Retirement Industry in 2019

In a recent WealthManagement.com article​​​, Rick Irace, along with other industry thought leaders, summarized key trends and developments in the retirement industry this past year. ​Irace noted that plan sponsors’ main goal has been to drive positive outcomes for employees. Ultimately, employers understand that overall financial wellness is crucial to “ensuring that employees are happy, healthy, and productive.​​​”​ The biggest topics of conversation have been security, service, data protection, and risk governance, as sponsors want assurance that plan providers can provide the support needed to run their plans while offering high-level service that’s built on trust.


How to Use the HSA, for Medical or Retirement Savings

Health savings accounts offer a unique triple tax advantage

The health savings account, or HSA, can be a powerful savings tool—if you approach it the right way.

These accounts, which Congress authorized in 2003, are more than just a simple savings tool for medical emergencies. Retirement planners laud the HSA’s triple tax advantage and its use as a complementary savings vehicle to 401(k) plans.

Oftentimes when people first hear of HSAs, it is during this time of year. For companies with policies that start in January, open enrollment typically happens in the fall. During this period, many employees are already stressed about choosing and selecting other benefits.

“I don’t think most people understand HSAs from the get-go,” said Roy Ramthun, a consultant who specializes in HSAs. “From my experience, the HSA gets 30 seconds of the health benefit presentation. It’s all about the insurance, and then ‘Oh, you have this.’”

HSAs are unique in the triple tax advantage they offer: You can contribute to them by setting aside pretax earnings without paying federal or state income tax. From there, that money can be invested and grows tax-free. Additionally, if used for medical expenses, you can withdraw this money tax-free before retirement, which you can’t do with a 401(k) or an individual retirement account.

Eric Remjeske, president of Devenir Group LLC, said since Congress authorized these accounts in 2003, the number of accounts and the average account balance have both grown over time. By 2011, there were 6.2 million HSAs, according to Devenir Research; this past June, that number had grown to 26.3 million.

More money is flowing into HSAs every year. Devenir Research data show that $43.5 billion was deposited in HSAs in 2018, with $10.2 billion invested, a sharp increase from the year before when $31.5 billion was deposited and $5.5 billion invested. By 2021, Devenir estimates that number will rise to $67 billion deposited with $21.2 billion invested.

While the 401(k) remains the predominant retirement savings vehicle, Mr. Ramthun recommends contributing to both a 401(k) and HSA, especially if your employer offers a match for either.

“Advisers are now asking the question: Where do you put the money, 401(k) or HSA?” said Steve Christenson, executive vice president at Ascensus, a retirement and college savings service provider. “They’re seeing more of a balance amongst consumers.”

To make the most of both, research if your employer offers matches. If your employer also offers an HSA match, Mr. Ramthun recommends prioritizing that contribution, as you’ll eventually be able to reap greater benefits from the HSA’s triple tax advantages. From there, contribute to your 401(k), and if your employer also offers a match there and you’re taking advantage of it, you’ll be benefiting from both savings plans.

The HSA contribution limits for 2020 are $3,550 for an individual with a high deductible health plan and $7,100 for an individual with family coverage. The catch-up contribution amount for those 55 years old or above is an additional $1,000. The amount contributed to an HSA doesn’t affect the contribution limits for 401(k) plans or IRAs, which are $19,500 and $6,000 respectively for 2020.

One approach to the HSA is to consider paying for current medical expenses out-of-pocket after establishing the HSA; you can then file for reimbursement in retirement. This way, you can supplement your retirement income—entirely tax-free.

If you’re taking this approach, you should make sure you invest your HSA balance in a diversified portfolio, so you can maximize its potential return. According to 2019 data from Ascensus, less than a third of HSA account holders eligible to invest their funds actually did so.

Meanwhile, keep track of the medical expenses you pay out of pocket. Keeping these receipts on hand means you can then file during retirement to have them reimbursed. But remember: You have to keep the receipts from any medical expenses you paid for out-of-pocket before retirement, just in case the IRS ever comes knocking for an audit.

An HSA can also be considered as a “rainy day” medical fund that works in tandem with your 401(k) to help offset the cost of out-of-network care, over-the-counter medicines or other things your insurance may not cover. Even if you’re healthy now, studies show you could still be spending much more on medical expenses once you enter retirement.

Remember: You can’t keep contributing to your HSA once you’re enrolled in Medicare. So maximizing contributions now will allow the miracle of compounding to work, growing that money in your HSA over time.

“Everything about retirement planning says, ‘Start young, be regular and invest,’” Mr. Ramthun said. “That’s what we want people to hear about HSAs.”


Securing Longer-Term Deposits with IRAs

As credit unions continue to seek ways to increase their member count and make capital available to those members, they often overlook a key source of longer-term deposits: IRAs. By taking a generational approach to the opportunities that IRAs provide, credit unions can expand their deposit base.

 

Millennial Approach

Millennials are good savers and are looking for financial services that they trust and that serve a worthwhile purpose. Credit unions can attract these younger savers by making educational modules about saving with an IRA available on their websites, as well as other outlets, like YouTube. And while millennials are likely to establish an account online, they are just as likely to visit a credit union branch directly, if inclined to do so. Credit unions should have a strong online new account set-up process, but also be prepared for in-person visits.

 

Generation X Approach

Generation Xers, who have now entered their 50s, are facing new life changes. Their children are close to, or have already, headed off to college, so gen Xers are beginning to refocus on retirement. And they are finding out that their retirement savings is behind plan. This group may benefit from consolidating their retirement plan assets and developing a revised retirement strategy.

Gen Xers are also starting to face the loss of their parents. They may be inheriting their parents’ savings, including IRAs. Under current regulations, IRA beneficiary options can be confusing and gen Xers may not realize the potential value of keeping those assets in an inherited IRA. This type of information or guidance may not be readily available to gen Xers. They likely will have questions, prompting them to call or visit the credit union. Credit unions should be ready to answer their questions and walk generation X members through all of their options as IRA beneficiaries

 

Baby Boomer Approach

Baby boomers are now reaching traditional retirement age (age 65) at a rate of 10,000 per day. This generation is either in retirement, partial retirement, or still fully employed. They are clearly focused on their specific retirement needs, both in terms of income and healthcare coverage.  They are looking for advice on rollovers from employer plans, ways to receive a stable monthly income, and someone to assist them with how to leave behind whatever remains to future generations. Credit union staff that recognize the baby boomer’s areas of focus and how an IRA can help them will be able to better address their concerns.

 

Become a Trusted Source

Regardless of which generation they fall into, people will remain loyal to the financial organization that helped them create a successful outcome. The key is to become their trusted source for savings education and problem solving. By effectively assisting members with their IRA questions and offering savings solutions, a credit union can become an integral part of that successful outcome. This may lead to more deposits for a longer period of time, and, in turn, enable a credit union to assist an even larger circle of potential members on their road to success.