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Springfield, MO

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A Conversation With ... Ken Stephens

Partner and Benefit Adviser, Employee Benefit Design LLC

Posted online

Tell me about the changes coming with the retirement legislation passed at the end of last year, Secure Act 2.0, and the efforts to make it easier for employees to save for emergencies.  
What that section permits employers to do is to offer to nonhighly compensated employees in the plan this emergency savings account. The money goes in there post-tax. It’s kind of like a savings account, but you can only put up to $2,500 in there. You don’t have to have a reason for the distribution. A lot of times, if you’re making a distribution from your retirement account, it has to be a hardship withdrawal. These don’t really have those rules. There’s no real penalties. They’re trying to encourage more participation in plans. You can add it to your plan starting in January 2024. I have not had any of my clients interested in it. You’d have to amend your plan, and then you would have to obviously help service the distributions from the plan.

The Vanguard Group found a record 2.8% of the 5 million people in its 401(k) plans withdrew from their retirement savings in 2022, up from a prepandemic average of about 2%. What’s driving that?
With the cost of living and the cost of borrowing from banks, I don’t know that people’s incomes are keeping up with the inflationary times that we’re in. So, they find themselves more in debt. It’s very expensive to use credit card debt, so they find that it’s cheaper to borrow their retirement funds than anywhere else.

Do you offer financial counseling before they make that choice?
It’s all about education. Sometimes, the people will just go to (human resources) and do it themselves. Sometimes, we actually have the HR people call us and go, “Would you talk to Bob?” He’s in a crisis for money – whether it’s for medical bills or student loan repayment or a family emergency. What’s happening now is for the first time in a long time in my career, it’s so multigenerational. We’re dealing (with) anywhere from baby boomers to Gen Z. Engaging. That’s the big term right now is engagement. How do you engage a baby boomer and a Gen Z? They have different educational needs and thought patterns.

Is the 401(k) still a preferred investment strategy for employees?
If an employer is helping you with a match on your retirement account, it is by far the best savings for retirement. A typical match might be a dollar for dollar up to 3% and maybe 50 cents on the dollar of the next 3%. We have been seeing employers in this tight labor market increasing their match. People should not try to leave money on the table. And the fees are typically lower. My investment fees are lower in an employer plan than they would be if I were just doing it on my own.

In addition to core benefits, what are some other benefits that your clients are requesting?
The core benefits are health, dental, vision, life insurance, disability insurance, retirement plans. We are doing a lot of work site-like accidents or cancer or critical illness. Telemedicine. We’re implementing a lot of Norton LifeLock, identity theft protection. We have a lot of employers adding that benefit not so much for the businesses because most businesses have a lot of antivirus [protection]. This is for protecting my mobile devices and my computer at home and from identity theft.

A Forbes poll this year found 62% of employees say mental health resources from their employers are key to job satisfaction. Are you seeing employers ask for more coverage in this area?
The No. 1 additional benefit that employers are asking me to include in the package is employee assistance programs. Programs where people can either connect telephonically or texting or in-person for any kind of emotional, financial, legal, behavioral [support]. Life is hard, so we’re trying to provide resources.

What are the other challenges that you hear from employers in offering benefits?
The No. 1 thing is the balancing act between providing good benefits and affording the cost. Everybody wants to be paternal or maternal with their employees and provide the best coverage, but sometimes that’s not affordable for them or the employee. Even with small companies now, it’s not unusual to have three different health plans, like a gold, silver and bronze. Your needs aren’t the same as mine. Medical and prescription inflation right now combined is probably up 12% for 2024. Medical is more like 7% or 8%, and prescription is more like 4% or 5%. Medical inflation is just its own animal and it’s continuing to go up. Employers I see right now are trying to absorb as much of the increase as they can to shield their employees from more coming out of their checks. The world is getting more of their checks with gas, food and housing. If you have to pay $100 more for health insurance, there’s a breaking point there.

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