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  • Writer's pictureSamantha Diggs

Retirement Planning in the Post-COVID-19 World

Updated: Mar 10, 2022

Though it seems like it will never arrive, the end of the Coronavirus pandemic will come eventually, and the world will return to some sense of normalcy. Of course, right now everyone is rightly focused on their health and that of their families. But when the sun rises on that elusive day, we will need to keep on administering retirement plans.

The pandemic has certainly had its impact on retirement savings: with the stock market dropping and 401(k) accounts taking a hit, 61% of Americans say their ability to set aside savings or investments have been affected by the crisis. Americans have been largely forced to shift their focus from their long-term goals to short-term needs—putting retirement planning somewhat on the back burner. This indicates that Americans are facing a new challenge that they were not prepared for.

Recordkeepers have made themselves busy adjusting their processes to accommodate for COVID-related distributions, tracking distributions and most (two-thirds) are accepting self-attestations from participants that they meet eligibility requirements. The vast majority of Recordkeepers (80%) also say they have already updated their systems to accommodate for the Coronavirus Aid, Relief, and Economic Security (CARES) Act, with more completing their preparations. TPAs are responding in kind to the adjustments being made by Recordkeepers. A TPA serves as a go-between, digesting all the information and changes coming from the Recordkeeper, and notifying Plan Sponsors about how that will affect their plan and what options are now available to them.

From a Plan Sponsor's perspective, approximately half are considering reducing employer contributions until the pandemic ends. To help avoid this, both recordkeepers and sponsors have been hard at work finding alternative solutions to help address expenses and cash flow concerns. Additionally, with most employees working from home, some sponsors have found themselves concerned with managing paperwork and required signatures, payroll and staffing issues, and a lack of the needed technological infrastructure.

What else should sponsors expect to see? They can predict an increase in participants searching for annuity options. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which provides a fiduciary safe harbor for the selection of lifetime income products for retirement Plan Sponsors, saw the interest in annuities increase among investors—especially among younger investors. In a recent study, nearly two-thirds of Millennials, 52% of Gen Xers, and 42% of Baby Boomers say they are somewhat-to very likely to contribute to a guaranteed income option such as an annuity.

A major motive for the growing interest in annuities from younger members is the fact that they are, for the most part, a risk-averse crowd. They are more likely to search for a guaranteed income stream to avoid losses. It is for this reason Plan Sponsors, especially those who manage a younger workforce, should be prepared for a new interest in annuity plans.

There is a temptation to compare this crisis to the financial crisis of 2009, however, this isn't necessarily a good analogy. Back then, a lot of participants were shifting their investments around, but now, people are seeking loans and/or hardship withdrawals. For those who are moving assets, they are largely shifting them to fixed income products.

This unprecedented time leaves many Plan Sponsors with unanswered questions and uncertainty about the next steps. So, what should you do? Turn to your Retirement Plan Servicing Team for guidance in navigating the current financial climate and remain confident that one day this crisis will end and you will be able to refocus on your financial future.

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