Category Archives: retirement

More 401(k) Bashing, and a Fix

I posted here earlier this month about a provocative Wall Street Journal piece in which the creators and early adopters of the 401(k) retirement-savings vehicle lament the revolution they started.

Their point: They had no intention of watching the concept turn into the sole — and highly inadequate — savings receptacle for employees.

Now, on the heels of that, comes this piece on the October Three site by benefits expert Larry Sher taking that discussion even further, to a whole lot more wrong with the defined-contribution approach and the people who support it — i.e., the people with skin in its game. As Sher writes:

“For instance, the government tried, unsuccessfully so far, to nudge DC plan sponsors to give participants some sense of how much life annuity their account balances might be able to provide. The push-back was immediate and severe from stakeholders in the DC system.

“Some objected on technical grounds —  the annuity estimate could vary widely depending on a number of assumptions including life expectancies, market interest rates and inflation. Others viewed this initiative cynically, believing that it was just a first step toward mandating annuity availability in DC plans, thus leading to the prospect of huge sums of assets shifting from mutual funds and other asset managers to insurers.”

The chief concern of policymakers, employees and even some of the employers that have embraced the 401(k) concept, Sher says, “can be summed up as the total shifting of risks to employees — the risks that they won’t save enough, the risk that they will use the savings for non-retirement purposes, the risk of unfavorable investment results — culminating in inadequate retirement savings and the prospect of outliving such savings.”

To mitigate the problem of employees dipping into their funds for non-retirement purposes, he suggests employers impose greater restrictions on such withdrawals. Of course, he also writes,

“The best way to close this loop would be to provide a core company contribution for everyone — not just for those who are willing or able to save.”

Here’s one of my favorites of Sher’s points:

“And perhaps one of the most disturbing aspects of a DC-only retirement system is the fruitless attempt to make employees into competent investors. Even if investment education works to an extent, the idea of employees spending time, probably mostly work time, to figure out how to best navigate the investment markets is an exercise in futility.

“When someone is sick they go to a doctor, not to medical school. Investment professionals have gone to investment school — a crash course in investments does little, or no more, than give employees a false sense that they know what they are doing. It’s like self-diagnosing a medical issue based on information on WebMD.

“The response from the DC world is default investments, such as target date funds. That helps but it still leaves employees vulnerable to temptations to time the market and apply their [inadequate]knowledge to making investment choices. Inevitably, the result is wide disparity in outcomes among plan participants — those with better outcomes being the better, or more likely luckier, investors.”

Sher’s solution to this DC mess is to establish a combination of a type of cash balance plan with a “market-return,”  so interest is credited based on real-market investment returns rather than high-quality bond yields. He calls this the MRCB. Here’s how it would work, according to him:

“The MRCB will provide much better cost control than a typical CB design — because account balances will tend to move in tandem with the plan’s assets, and regardless of changes in market interest rates. The employer can tune the degree of investment risk it is willing to share with employees by providing more downside protections, possibly in exchange for retaining a portion of the upside investment returns.

“By providing some of the employer benefits through an MRCB, the employer is accomplishing all of the goals that the government and some employers are trying to achieve by changing DC plans to be something they are not meant to be. Employer pay credits would automatically be provided to all participants — no dependency on employee contributions. There would be no diversion of the benefits during employment — no loans or withdrawals. Annuities would be provided directly by the plan — thus avoiding the extra cost of retail-insured annuities.

“Yes, that means the employer retaining some long-term longevity risk — but even that is controllable by how the factors are set and managed over time to convert accounts to annuities. The MRCB typically would allow employees to elect lump-sum distributions upon termination or retirement [equal to account balances, with spousal consent], although the ability to elect lump sums can be restricted by plan design to the extent the employer considers that to be desirable.”

And where would such an approach leave the 401(k)-DC plan? In Sher’s words:

“Just where it should be –as a short-term and supplemental long-term savings vehicle … “

not the only show in town.

401(k) Creators Lament Creation

A most interesting regret highlighted in the Wall Street Journal on Monday! (Subscription required.) Seems the handful of champions of the 401(k) retirement-savings vehicle now see the errors of their ways. Or the vehicle’s ways, anyway.

None of those mentioned and quoted in the compelling piece foresaw that the 401(k) would essentially replace pensions. And they see this as quintessential to the demise of the overall retirement picture in this country, and employees’ inabilities to save what they need.

We’ve certainly written our fair share of stories raising major red flags about the state of retirement and workers’ diminishing abilities to retire at all — both here on this HRE Daily site and in our magazine and on its website, HREOnline.com. But this is the first time any of us have heard from the horses’ mouths — the authors and early promoters of the savings vehicle — that they had no intention to launch and herald it as the nation’s sole retirement receptacle, if you will.

Ted Benna, a benefits consultant with the Johnson Cos. and one of the first to propose the vehicle back in 1980 — ergo his nickname, the father of the 401(k) — puts it this way in the piece:

“I helped open the door for Wall Street to make even more money than they were already making. That is one thing I do regret.”

Herbert Whitehouse, a former human resource executive for Johnson & Johnson and one of the earliest proponents of the 401(k) for employees, tells the WSJ that he and others were hoping and assuming back in 1981 that the savings approach would be a kind of supplement to company pensions.

What he and his co-horts didn’t imagine, he says, is that the idea would actually replace pensions as employers looked to cut costs and survive during subsequent downturns. As he puts it in the story:

“We weren’t social visionaries.”

The story is also rife with recommendations from today’s experts on how best to fix the problem and help employees save for retirement according to what they will actually need.

But as Benna tells WSJ,  he doubts “any system currently in existence” will be effectual for the majority of Americans.

A sad treatise, and no sadder than for those millions of Americans still in the workforce who can’t retire.

Empty Nesters’ Emptying Coffers

Full disclosure: I’m a softy when it comes to helping my grown kids. I frequently find myself opening my wallet more than I should, especially during this “giving” holiday. Not that they ask for it, just that I see needs in these lives I cherish, always have, and am probably quicker than most to contribute to the cause.

So I’ve been nagged ever since I came across this release from the SUM180 site about this study by the Boston College Center for Retirement ResearchDo Households Save More When the Kids Leave Home?

The answer to that question appears to be, in the words of SUM180, “not as much as you might think.”

Carla Dearing, the online financial-planning service’s CEO, doesn’t mince words in suggesting why empty nesters are only able to sock away 0.3 percent to 0.7 percent more than they were able to when they had much bigger bills and children in school.

“Among the explanations [are] empty nesters’ continued financial support of adult children,” she says. “Picking up their grown kids’ expenses — student loans, insurance, auto payments, smartphone bills — is a generosity those who have not yet saved enough for retirement can ill-afford.” She goes on to stress that:

“Those in their 50s — typically — are ideally positioned to accelerate their retirement savings: They’re at the peak of their earnings, the mortgage is paid and the kids are finished with college and out of the house. As this is possibly their final chance to ensure their retirement is financially stress-free, directing more into retirement savings must be their top priority.”

OK, I get that. I have been upping my 401(k) contributions fairly regularly. And I’m not picking up my grown kids’ living expenses as a matter of course. But oh is it ever hard to turn my back on those unforeseen needs in their stressed-out lives and the little lives they’re now raising. Yet that’s what Dearing is telling me to do. Get more selfish about my own survival. As her release says:

“Think of it as putting the oxygen mask on your face first. It may feel counter-intuitive, but, after all, your security in retirement is something your children want for you, too.”

I don’t think I’m alone in this baby-boomer weakness, fallacy, foible … call it what you will. And I do think it’s a problem specific to us boomers, not just because of where we are in our lives as parents, but because of where our heads are as parents as well. We’ve always wanted everything for our kids. We’ve always been willing to do everything in our power to see them not just make it, but succeed. How can we now dial this back and take better care of our own retirements? And is there something HR leaders can do to help this along in the workforce?

I put these questions to Dearing. She had some suggestions and observations worth sharing and thinking about:

“Too many boomer parents have a hard time drawing the line when it comes to helping their grown kinds financially, even when their own financial security is at stake. Helping your employees address this issue can have a big impact on their financial wellness, but it’s tricky. Dealing with money is always emotional; this is particularly true when family is involved.

“From an HR leader’s perspective, the challenge is to help employees make decisions about money and their children from a place of clarity and strength, rather than uncertainty and emotion.”

Here’s what she suggests, not just for boomers, but as talking points for the employers trying to help them:

“First, break through the emotional fog with real information. Give employees access to tools that help them get a handle on their own financial situation. You can encourage your employees to read books or attend workshops about communication and boundaries, you can keep trying to ‘educate’ parents about the importance of saving for retirement versus supporting grown kids financially, but in my experience, nothing beats real information for helping parents draw the line with their adult kids financially.

“The truth is, ‘putting on your own oxygen mask first’ is much easier when your eyes are wide open about your own financial shortfalls. When employees have a clear understanding of what they, themselves, need to regain control of financially, their priorities can naturally self-correct. Real information takes the guesswork out of the question, eases the emotional pressure and gives parents a rational framework for deciding whether they can truly afford to help.

“Second, bring the language of business to conversations with grown children about money. Chances are, your employees already know how to navigate business conversations with skill, tact and resolve. Show them that they can apply the same principles to financial conversations with their kids, and that this can go a long way toward defusing the emotion involved and arriving at sound decisions as a family. Some specific tactics worth sharing:

  • If a child wants to borrow money, the parent or parents should set up a meeting dedicated to discussing the loan and nothing else. Keep the meeting free of distractions such as household chores or family activities.

  • The parent or parents should maintain a businesslike tone and attitude throughout the conversation. If a child wants a loan, the parents should require a repayment schedule and an interest rate that they can be happy with.

  • Practice makes perfect. Saying no to one’s kids may never get easy, but it will get easier as they get used to approaching financial conversations in a rational, businesslike way.

“Let me close with a story that I think illustrates these two points. My client, a woman age 49, had a business that was doing fine, but not great. As we worked on her financial plan together, she realized two things: 1) Looking hard and honestly at WHY her business was underperforming, she was forced to admit that her son, the business’ controller, was not the best person for the job, and 2) She had a limited window of opportunity — 10 more years — to save and prepare for retirement. These realizations gave her the push she needed to finally give her son 12 months’ notice. Her son received plenty of time to transition elsewhere and she was able to start growing her business into the source of retirement income she needed it to be.”

Though I’m not running a business, therefore thankfully don’t have to think about firing one of my own kids, I do think having more resolve to “just say no” when my giving spirt goes into overdrive needs to be a New Year’s resolution. Or maybe it’s time to sit down and have that financial talk with them (though I think I’ll wait till after the holidays).

After all, I’ll be handing my retirement reality over to them one day. We should all be on the same page.

High Anxiety for Plan Sponsors

It’s still unclear whether the incoming Trump administration will take aim at the Department of Labor’s new fiduciary rules, which are slated to go into effect on April 10.  As Joseph Urwitz, a partner in McDermott Will & Emery’s Boston office, told us late last month: “While it’s not possible to predict the future, the new Congress and president may overhaul, eliminate or at the very least delay implementation of the fiduciary rule. Time will tell whether or not any of these moves will come to pass.”

thinkstockphotos-468426388But what we do know is that litigation continues to be very much on the minds of plan sponsors.

This fact received further support earlier this week, when Cerulli Associates, a global research and consulting firm, released the findings of a study—titled “The Cerulli Report: U.S. Retirement Markets 2016”—that found more than half (57 percent) of more than 800 401(k) plan sponsors questioned are concerned about potential litigation.

While much of the litigation has targeted large plans with deeper pockets, the research found that smaller plan sponsors are also paying attention to today’s litigious environment.  Nearly one-quarter of small plan sponsors—those less than $100 million in 401(k) assets—describe themselves as “very concerned” about potential litigation.

As most of you know (and the Cerulli report points out), fee-related lawsuits, in particular, have been something of a theme in 2016, putting added pressure on plan sponsors to find ways to reduce fees. “Plan-sponsor-survey results show that the top two reasons for which 401(k) plan sponsors choose to offer passive (indexed) options on the plan menu are because of ‘an advisor or consultant recommendation’ or because they ‘believe cost is the most important factor,’ ” according to the Cerulli press release. But there is also no denying that lowering the risk of litigation factors into the decision making as well.

The Cerulli report suggests that the rash of litigation that has occurred in recent times is stifling innovation. Jessica Sclafani, associate director at Cerulli, notes that “plan sponsors feel they have little to gain by appearing ‘different’ from their peers due to the risk of being sued. This mindset can make plan sponsors reluctant to adopt new products … .”

Now THAT’s Honest Feedback

There’s a saying that people want the truth until they get it.

Consider the leadership team at the Pennsylvania Turnpike Commission, who might regret asking interchange manager Michael Stuban to fill out an exit survey on his last day before heading into retirement.

Stuban, who spent 35 years with the organization, offered his two cents and then some.

In a recent interview with The Philadelphia Daily News, Stuban described the “brutal” frankness with which he approached the online questionnaire.

“When they asked for an honest exit interview, I gave them one,” Stuban told the paper, with a bit of a laugh. “I sent it minutes before I officially retired.”

For what it’s worth, the 58-year-old Stuban wrote that he didn’t really want to retire just yet, and that he actually liked his job.

He may have enjoyed his work, but it seems he wasn’t so crazy about the people he worked for.

The “out of touch” executive-level managers at the helm of the “rudderless” agency, for instance, are “only looking out for themselves,” according to Stuban. He characterized the past five years at the commission as “terrible,” with “no morale” among employees.

These same co-workers were asked to take part in classes “where we were told we are not political,” wrote Stuban, who opined that the commission frequently hires incompetent employees “based on political connections,” according to the Daily News.

Stuban didn’t mince words when it came to the idea that corporate politics were not at work within the organization.

“That’s bulls—,” he wrote. “Jobs/promotions are filled by the politicians … it’s who you know, not what you know. Positions [are] created for people who are not qualified.”

And, Stuban apparently felt so strongly about the thoughts he was sharing that he had to disseminate them throughout the organization. Stuban emailed his completed exit survey not just to the HR department from which it came, but to more than 2,000 colleagues as well, according to the Daily News.

At least one of them found some levity in Stuban’s sentiments.

“Want to get away? Southwest is offering great fares … ” replied the employee, in a reference to the airline’s well-known commercial tagline.

Turnpike Commission Chairman Sean Logan didn’t find Stuban’s candor quite so funny.

Logan, a former Pennsylvania State Senator, was equally blunt in his reply, which went out to those same 2,000-plus turnpike employees, the Daily News notes.

“Mr. Stuban … I don’t believe we ever met, and after reading your exit questionnaire, I am grateful that we didn’t.”

According to the paper, Stuban was made aware of Logan’s brusque response, and, perhaps not surprisingly, felt the chairman failed to see the point of his missive.

“If it was an effective company and someone told you there are problems and no morale, you don’t have to believe me, but maybe someone should check into it.”

No one outside this particular organization can really say how accurate Stuban’s depiction of its culture may or may not be. And who knows how the commission has responded, or plans to respond, to the issues that Stuban alleges exist within the agency.

But if morale really is a problem there, then Logan’s reaction to Stuban’s candid, albeit harsh, feedback probably won’t encourage other workers to offer their honest (and invaluable) opinions to those above them. And that’s the organization’s loss.

Setting Their Sights on Retirement

thinkstockphotos-498426671If you think millennials aren’t concerned about retirement, think again.

On Tuesday, Willis Towers Watson released a survey that found six in 10 millennials are willing to sacrifice pay for more secure retirement benefits. (This compares to roughly four in 10 in 2009.)

“Employees of all generations, including millennials, are feeling vulnerable about their long-term security,” says Steve Nyce, senior economist at Willis Towers Watson. “Employees young and old actually have a strong desire for more retirement security and are willing to give up pay to get more guarantees or a larger retirement benefit. Interestingly, employees seem to be saying they have enough health coverage now and are reluctant to pay more.”

As far as healthcare is concerned, only one-third of millennials (32 percent) surveyed said they are willing to pay a higher amount for lower or more predictable health costs, a decline from 43 percent in 2009.

When asked how they would spend money if their employer provided them with an allowance to spend on a variety of benefits, millennials said they would allocate more than half to healthcare and retirement-plan benefits (27 percent each). Not surprisingly, nearly half of millennials (48 percent) ranked pay and bonuses over all other benefits if given a choice, a clear indication of the financial issues they face and the need for more financial flexibility today.

Slowly but surely, employers are beginning to accept the fact that employees, be they millennials, Gen X or baby boomers, are hungry for support as they strive to tuck more money away for the future.

So I guess it’s no surprise then that we’re beginning to see robo advisers such as Betterment gain some traction in the workplace.

At the 2016 Benefits Forum and Expo in Nashville, Tenn., this week, Betterment General Manager Cynthia Loh shared the value her organization is bringing to the business community. (Loh spoke during a general session on Wednesday.)

Many of you probably will recall Betterment’s announcement last fall of a new 401(k) platform that uses technology to offer personalized investment advice for all participants, along with administrative and fiduciary support for plan sponsors. (It began rolling out the platform earlier this year.)

Betterment CEO and Founder Jon Stein said at the time, “Current 401(k) offerings—and we have examined them all—have poor user experiences, high costs and a clear lack of advice. Not anymore.”

In late July, the company announced that it had signed on more than 200 plan sponsors since the beginning of the year—and, according to Loh, the company is continuing to sign up new clients at a fast clip.

So far, Betterment hasn’t signed up any Fortune 1000-size organizations. The largest plan sponsor to sign on is MVP Anesthesia Associates, a physician group. But down the road, the company certainly hopes to make inroads into even larger employers.

Retirement Planning: The Gender Gap Persists

A quick search of our website, using the terms “women” and “retirement,” brings back an article from August 2008 that describes retirement planning as “a nightmare for many women.”

In said piece, former HRE freelancer Marlene Prost shed light on female employees’ well-founded worries about outliving their retirement savings, and urged HR leaders to “step in with help” for women workers, who live longer than men on average while typically earning less.

As I sat this morning reading a press release summarizing new Aon Hewitt research, it felt like Prost’s article could have just as easily been written in 2016.

In other words, the story remains largely the same.

In examining the retirement saving and investing behaviors of roughly 3.5 million defined contribution participants from more than 125 employers, the Lincolnshire, Ill.-based Aon Hewitt found that 83 percent of women aren’t saving enough to meet their needs in retirement, compared to 74 percent of men who feel they aren’t putting enough away to live comfortably after leaving the workforce.

Aon Hewitt projects that women will need 11.5 times their final pay to meet their financial needs in retirement, but finds “a gap of 3.3 times pay between what women need and what they’re actually on track to have saved in order to retire at age 65.” Meanwhile, the disparity between needs and resources is just 2.0 times pay for men.

This shortfall, according to Aon Hewitt, means women, on average, will need to work until age 69—one year longer than men—in order to meet 100 percent of their needs in retirement.

“Women face significant stumbling blocks when it comes to saving enough for retirement, including longer lifespans, lower salaries and a greater likelihood of taking hardship withdrawals from their 401(k)s,” says Virginia Maguire, director of retirement products and solutions at Aon Hewitt, in the aforementioned press release. “Making retirement and financial well-being a priority is paramount for overcoming those challenges.”

The study also finds women and men participating in employer 401(k) plans at the same rate (79 percent), but lower savings rates pair with salary incongruities to further broaden the savings gap. For example, women are, on average, contributing 7.5 percent of their salaries to 401(k)s, which lags more than a full percentage point behind male employees (8.7 percent). In 2015, women had an average plan balance of $71,060, while the average amount for men was $119,150 last year, according to the report.

Naturally, Aon Hewitt suggests ways in which employers can help chip away at the difference, including offering tools such as healthcare and financial market education to improve overall financial well-being, providing professional investment help and adding plan features designed to increase savings rates.

And, even minor tweaks can have a major impact.

“When employers take an active role in helping all workers improve their financial well-being and save more for retirement, women will benefit,” according to Maguire. “Small changes to plan design and an improved focus on day-to-day finances can go a long way to closing the savings gap.”

Millennials Running a Career Marathon

There’s been a lot of talk—an awful lot—about how millennials see work differently than the generations that preceded them.

When it comes to their post-employment prospects, though, Gen Y workers apparently share the view of many of their more experienced colleagues.

In other words, millennials aren’t sure they’ll ever get to retire either.

ManpowerGroup’s Millennial Careers: 2020 Vision report finds American millennials “preparing to run career ultramarathons,” with 66 percent of 1,000 employees between the ages of 20 and 34 saying they expect to work past the age of 65. Thirty-two percent anticipate staying on the job beyond age 70, and 12 percent of these incurable optimists foresee keeling over in a cubicle, essentially working “until the day they die.”

But, however long they wind up working, millennials will be taking a breather here and there. Indeed, 76 percent of those polled by ManpowerGroup said they are likely to take career breaks longer than four weeks. The reasons for these breaks “are revealing,” according to the report, which notes that women intend to take more time out to care for others—children, older relatives and partners as well as doing volunteer work.

More specifically, 66 percent of female millennials indicated that they plan to take leave after the birth of their children, while 32 percent of men said the same. Thirty-two percent of women anticipate taking time off to care for parents or aging relatives, compared to 19 percent of men who expect to put their careers on hold at some point for the same reason.

Gen Y still hopes to squeeze in some fun, however. The report points out that both genders aim to prioritize “me-me-me time” and leisure-related breaks, with 29 percent of American millennials planning to take significant breaks for relaxation, travel or vacations.

Still, the occasional hiatus aside, it seems millennials are looking down a long road, unsure of when or if they’ll get to enjoy their golden years. They’re not the only ones, of course, and a new Willis Towers Watson survey is just the latest to reinforce this fact.

The consultancy’s 2015/2016 Global Benefits Attitudes Survey polled 5,083 U.S. workers, 23 percent of whom believe they won’t be able to retire before they turn 70, if at all.

Naturally, fretting over their retirement savings, or lack thereof, is taking a toll on these workers, with 40 percent of those who anticipate working past age 70 saying they have high or above-average stress levels. (Just 30 percent of employees expecting to retire at age 65 report feeling that frazzled.) Forty-seven percent of these employees said they are in very good health, compared to 63 percent of those expressing confidence that they’ll be able to walk away at age 65.

The connection between employees’ uncertainty about retirement and their stress levels—regardless of age—is a logical one. But, with the vast majority of workers counting on their employer’s retirement plan as their primary savings tool, organizations “have plenty of motivation to act,” said Shane Bartling, senior retirement consultant at Willis Towers Watson, in a statement.

“In addition to saving for retirement, employees are dealing with other, competing financial priorities such as housing and debt,” said Bartling, urging employers to “personalize their real-time decision-making support and recalibrate default enrollment to close the gaps in employee understanding about the savings amount required and costs in retirement.”

No On-Ramp to Retirement for Many Workers

In a troubling bit of news for anyone who plans on stopping work someday: more than 40 percent of full-time private-sector employees in the United States say they lack access to either a pension or an employer-based retirement savings plan such as a 401(k), according to a new study by The Pew Charitable Trust.

According to the report, the data show that even within the same state, retirement plan access can vary widely:

“For example, in South Carolina, 50 percent of workers in Charleston reported having access to a retirement plan—18 points lower than the 68 percent in Columbia. This variation probably comes from the mix of industry and worker characteristics in each urban area.”

Some of the metropolitan areas with relatively high retirement plan access rates also face broad economic challenges, factors that are likely tied to the industries prominent there and their financial circumstances. For example, over 70 percent of workers in Scranton report having access to a workplace retirement plan, but the area also has higher unemployment and lower average wages than the United States as a whole.

Other key findings of the report include:

•• Retirement plan access varies more among the nation’s metropolitan areas than across states as a whole. The access rate among workers in the metropolitan areas ranges from 71 percent in Grand Rapids, Michigan, to 23 percent in McAllen, Texas. Nationwide, 58 percent have access to a plan.

•• Metropolitan areas with low access rates are heavily concentrated in certain large states. Nearly three-fourths of the metropolitan areas  in the bottom 25 percent are in Florida, Texas or California.

•• Employer and worker characteristics appear to play a large part in the disparate levels of access. For example, metropolitan areas with relatively low rates of access generally have more people working for small employers.

Many areas with higher percentages of Hispanic or low-income workers also tend to have lower access rates.

Methodology: The figures come from a pooled version of the 2010-14 Minnesota Population Center’s Integrated Public Use Microdata Series Current Population Survey (CPS), Annual Social and Economic Supplement.

Unless otherwise noted, “worker” means a full-time, full-year, private sector wage and salary worker age 18 to 64. The term “metropolitan area” refers to a metropolitan statistical area, as defined by the federal Office of Management and Budget.

The DOL’s New Fiduciary Rule

The new fiduciary rule issued yesterday by the Dept. of Labor, which is designed to address conflicts of interest among financial advisers, will require HR departments to review their arrangements with vendors that provide retirement-plan services, say experts.

“The definition of ‘fiduciary’ is being expanded, and HR will need to determine if they have vendors that will now fall under this category,” says Robert Kaplan, associate attorney in Ballard Spahr’s employee benefits and executive compensation group.

The rule is designed to protect the best interests of retirement-plan participants and sponsors by applying the “fiduciary standard” to all those who provide investment advice in order to prevent conflicts-of-interest, which the White House Council of Economic Advisers says costs retirement savers $17 billion a year.

In many cases, vendors that provide services for employer-sponsored retirement plans that hadn’t been fiduciaries before the new rule – such as broker-dealers, mutual-fund representatives, etc. – will be considered fiduciaries once the new rule takes effect (it goes into final effect on April 1, 2018, with a “transition period” starting April 1, 2017). HR will need to carefully evaluate all advisers that provide services to their organization’s retirement plans to determine whether they’ll now be considered fiduciaries, says Kaplan.

For example, many 401(k) record-keepers offer “reach out” campaigns targeted at plan participants (including former employees who still have accounts in the company plan) who may be considering whether to rollover funds from a 401(k) plan into an individual retirement account. Today these services only need to meet a “suitability” standard, says Kaplan; under the new rule, they must meet the fiduciary standard.

Much of the compliance duties for the new rule will be handled by vendors and record keepers, says Kaplan. However, in a few instances HR may encounter vendors that refuse to recognize that they will now be considered fiduciaries – in such cases, HR will need to terminate the relationship, he says.

“There are some less-than-reputable vendors that don’t want to be held to the fiduciary standard, and they will probably be driven out of the business,” says Kaplan.