|Looking back at 2019…
- Loan leakage was reframed as a financial wellness problem. A new study by Greenwald & Associates and Custodia Financial revealed that employees are stressed about loan repayment, damaging productivity. Earlier in the year, an ADP report also highlighted that over 40 percent of participants will likely need their retirement money for non-retirement related expenses.
- Loan defaults emerged as a “fiduciary storm brewing.” Bruce Ashton of the prominent ERISA law firm Drinker Biddle & Reath published a new whitepaper contending that most sponsors are relying on disclosure alone to fulfill their fiduciary duty—but that it doesn’t go far enough.
- Regulator visibility heightened. Last year, the IRS’s recent change to Form 1099-R, requiring a special code to track 401(k) loan defaults that arise from termination, went into effect. Then, in May, the Government Accountability Office (GAO) issued a new report calling for the Department of Labor to add that information to Form 5500 reporting.
- The risk of plan leakage increased due to easing hardship rules. In September, the IRS released final regulations on changes to hardships as a result of the Bipartisan Budget Act of 2018, making it easier for participants to access their retirement nest egg. While the long-term magnitude of the impact remains unclear, Fidelity reported a 40%+ increase in hardship withdrawals since the beginning of the year for plans that had already adopted the new regulations.
As industry awareness continued to mount, we at Custodia also accomplished several major milestones:
- Our first Retirement Loan Eraser clients went live, and we built our first recordkeeper connection.
- We made exciting enhancements to our team, adding to our Strategic Advisor Council Bradford Campbell, former Assistant Secretary of Labor; Chuck Hill, former CHRO of Pfizer; Mark Herman, a former insurance executive; and Roger Ochs, former CEO of HD Vest.
- We launched our Fiduciary Resource Center, which contains a wealth of tools and resources—including our personalized Loan Loss Estimator—to help plan sponsors, consultants, and advisors explore the loan leakage problem.
- We were honored to have our thought leaders featured in many prominent industry events and publications, such as Pensions & Investments East and West Coast Conferences, Institutional Investor’s Defined Contribution Institute events, PLANSPONSOR, Employee Benefits News, and many others.
As we at Custodia Financial look to a new year, we’re excited to continue to pursue our sole purpose: to prevent 401(k) loan defaults—a financial wellness, retirement readiness, and fiduciary problem that impacts the most vulnerable participants in the defined contribution system.